THERE are few things in business more maddening than having a customer who will not pay on time.

Late payment destroys trust and poisons the personal relationships that small businesses like to develop with clients.

If cash flow is already tight it sometimes only takes one big bad payer for the bank to lose confidence.

Late payment has the potential to bring even large businesses crashing down.

In some industries suppliers are constantly on a knife-edge because their clients use them as a source of free credit.

The philosophy seems to be "why pay interest on borrowings when we can borrow for nothing from suppliers?"

Apart from the ethical issue - and quite frankly this practice stinks - there are solid business reasons why firms should pay on time.

Building strong relationships with suppliers helps to guarantee a strong supply chain and allows both parties to concentrate on developing quality and value for money.

There is some evidence that suppliers are biting back. Research carried out by the Better Payment Practice Group suggests that businesses' tolerance of late paying customers is low.

Why do firms allow themselves to be suckered into deals like this? It is the old story of hope triumphing over common sense.

These firms may be good at sales but have no coherent credit control system. They are so excited by winning orders that they fail to make their payment terms clear at the outset, and are reluctant to chase the debt too hard.

Firms now have a legal right to claim interest of base rate plus eight per cent on the overdue amount.

It might have more effect if this figure were 16 per cent over base. There is much useful information about this subject on www.payontime.co.uk and www.businesslink.gov.uk.