The warning comes as the Groceries Code Adjudicator launches an investigation into Tesco and its payment practices to its suppliers, and the government announces plans to bring in tough new laws and bulk up existing codes of practice to tackle the issues of late payment.
Lovetts has calculated that businesses that consistently pay their suppliers late, in particular large businesses with a significant number of suppliers such as Tesco, could face compensation claims amounting to over £60 million should their agreements be subject to the Late Payment of Commercial Debts (Interest) Act 1998.
The Late Payment Act allows businesses paid late to claim interest for the period the debt was overdue, plus compensation. The entitlement to claim interest and compensation remains for six years on each and every invoice paid late, unless clear assent is proven against the claimant.
Michael Higgins, operations director of Lovetts, said: "Any business that has consistently paid their suppliers late is liable for late payment compensation claims, regardless of whether they still work with that supplier or not.
"A number of our clients are utilising the act to take on late payers, past and present, the majority of which have recovered significant sums to compensate them for the administrative and legal costs they have incurred chasing late payment. In fact we recently helped one SME client recover £60,000 in late payment and interest."
In another case, Lovetts had a client who dealt with a number of slow paying public sector organisations. When the client's contract with each public sector organisation came to an end, the client would put in a claim for late payment interest and compensation on all the invoices paid late over the life of the contract. They ended up collecting around £50,000.
"The law has been in place since 1998 and this government adopted an EU directive in 2013 to allow reasonable costs for recovering the debt to be added. If every business started using the legislation we have already got, it would send a clear message to big businesses that late payment will no longer be tolerated," continues Higgins.
In some cases, big businesses have been known to use their influence over suppliers to specifically exclude the Late Payment Act from supplier contracts meaning they can impose grossly unfair payment terms and remedies for late payment that are inadequate in compensating the supplier.
However, Higgins states: "We are starting to see bad practices being exposed. With SMEs fighting back and the government backing tougher measures in relation to late payment, the tide is turning on late payers."
