BUSINESSES which are slow to pay invoices could be hard hit by major changes to debt recovery laws, warns a Bury-based specialist.

From August 7, large companies, as well as small businesses, can charge hefty interest rates on debts not settled within their credit period.

Richard Taylor, a partner at Bury accountants and business advisers DTE, believes small companies supplying larger customers will be most at risk as a result of the new legislation. It means interest on debt can be charged at the Bank of England base rate, plus eight per cent.

He explained: "While small suppliers may be nervous about charging interest to their customers, I suspect large suppliers may not show the same degree of hesitation. Beware if you pay your larger suppliers late. You may find interest added to the debt."

Legislation was introduced in 1998 enabling small companies to claim interest on late payments by large companies.

In 2000, the law was extended to cover late payment by other small companies. New rules allowing large companies to claim debt interest from small ones have now been brought forward from November to August to fulfil the UK's obligation under a European Directive.

Mr Taylor added: "For reasons that are not entirely understandable, this piece of legislation has not been widely used.

"Obviously, businesses do not want to upset ongoing customers by charging interest but what is not clear is why businesses have not charged interest when their customer has gone to an alternative supplier. Perhaps the answer is that they hope to recover the lost customer.

"There is a six year period in which to claim, so there is no reason for suppliers who have lost customers not to go after the interest at a time of their own choosing -- particularly if there is little prospect of getting a customer back. However, companies do need to consider their reputation in the market place," Mr Taylor continued.

Suppliers can claim interest payments as soon as their credit period, usually 30 days, has been exceeded. If the purchaser fails to pay the interest, the supplier can pursue the claim through the courts.

Any award in the courts against the purchaser will impact on their credit rating which could cause serious cashflow problems, stressed Mr Taylor. Debt recovery costs can also be claimed. He concluded: "Cash is key to all business and anything that will either bring in more, or persuade debtors to pay more promptly, should we welcomed. Whatever the size of your business, you may be able to utilise the existing and newly extended legislation."