Late payment has become a ‘badge of honour’ for British businesses who are failing to see the knock on effects stalling payments can have for the entire economy, according to Charles Wilson, CEO of commercial debt recovery law firm Lovetts.

In the second quarter of 2012, the average value of debts passed to Lovetts by its clients, rose by over 38% on the previous quarter.

This follows recent analysis by BACs which revealed SMEs in the UK are owed £35.5 billion, an increase of £2 billion compared to the end of 2011.

Lovetts’ analysis also found that while the number of individual debts being chased by legal claim has dropped, the average value of those debts has increased – by over 11% on the quarter, and almost 24% year on year.

Lovetts believes that this demonstrates an encouraging longer-term trend, with businesses treating larger debts as a serious threat and being prepared to pursue the perpetrators through the legal system.

Wilson said: “Late payment legislation has failed to halt a culture that now pervades almost every quarter of our commercial landscape and impacts on SMEs the most. It’s a domino effect, one business in the chain paying late can force the others to delay payment – the problem is that not all businesses have deep enough pockets to cope.

“The UK is one of the few European countries where late payment has become a fact of business life. We are still behaving like a nation of shopkeepers driven by price rather than value or quality and a reliance on credit leaves firms vulnerable to see-sawing fluctuations in the economic cycle. This separates us from our European counterparts in Switzerland, Germany, Denmark, Sweden and Norway. In Scandinavia for example, late payment is much less common because it is culturally unacceptable.

“At the start of any new commercial relationship, it is vital to make absolutely clear that you expect clients to pay on time. State your Terms and Conditions clearly, including details on how any overdue payments will be dealt with. Companies should use a Late Payment Demand (LPD) from a solicitor to send a strong message of their intention to punish late payment.

“Too many businesses still shy away from taking advantage of the Late Payments of Commercial Debts (Interest) Act 1998, despite being well within their rights to do so. In many case this is because firms are simply failing to state that the full cost of any debt recovery activity necessary to secure overdue payments will be added to the invoice. This should be stated in the Terms of Business at the start of any relationship. Get the Terms and Conditions right and businesses stand a fighting chance in the late payment battle – a vital step to seeing them through the economic downturn.”