New proposals for a European directive to combat late payments have been welcomed by small business leaders in North Yorkshire, but they warn: "Watch for the small print in private contracts."

The European proposal goes beyond the UK government's plans to give creditors a statutory right to interest on the money owed.

It also calls for full compensation from the late payer for any further damage, financial or otherwise, caused by late payment. Suppliers in Britain are at present not entitled to any compensation for administrative costs they incur in chasing their rightful money.

The European plan, which the commission wants implemented by December 31, 2000, at the latest, would also improve legal procedures through:

accelerated recovery procedures for undisputed debts which are swift, simple to use and low cost. A writ of execution should be issued within 60 days from the date of application and creditors can choose to be represented by a third person, as long as the debt remains undisputed. The UK has a similar procedure, although only lawyers can handle it.

simplified legal procedures for disputed small debts worth up to 20,000 Euros or £12,000 - four times the limit of the UK small claims procedure. That's the good news so far as leaders of both the York and North Yorkshire Chamber of Commerce and the North Yorkshire Region of the Federation of Small Businesses are concerned.

But the bad news is that "freedom of contract" will be unaffected by the European directive, meaning that compensation only applies if the contract does not specify otherwise.

Roland Harris, chief executive of the 620-member York and North Yorkshire Chamber of Commerce, says: "Anything that helps to improve the payment culture and makes it more prompt and efficient has to be welcomed.

"But small businesses should be wary of the details in the contract abrogating the new laws. The trading relationship issue has not been addressed."

Mandy Stott, North Yorkshire regional organiser for the Federation of Small Businesses, agrees. She says "We have been strong supporters of statutory rights of interest on late payments.

"But we are concerned that if you claim that right you might lose a customer. The big guys are likely to discriminate between those suppliers who do what they say and those who don't."

Insisting on get-out clauses over payment in the contract would undermine all that the directive would be trying to achieve, she warned.

One way that her federation has sought to shame organisations into playing fair was by commissioning from Dun & Bradstreet regular league tables of bad payers. Now a blacklist of bad payers could be drawn up for suppliers. "It is an idea worth looking at," she said.

The European action follows hot on the heels of an NOP European payments survey for credit management and debt collection group Intrum Justitia which shows that Britain has the third highest level of late payment in Europe, worse only in Portugal and Ireland, and has the highest amount of intentional late payment in the European Union, with 53 per cent of all payments delayed on purpose.

Because of late payments, 72 per cent of UK firms have had cash flow difficulties, 62 per cent claim loss of significant amounts of profit, 41 per cent say the growth of their company is restricted and 41 per cent say that the survival of their ventures are at risk.

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