Unpaid bills are the biggest problem for many small firms.

Research by Alliance and Leicester found one in four business owners believed late payments by customers were their main worry.

The problem came above complaints about tax or local competition.

Head of marketing Gareth Williams said: "With the Budget now out of the way, late payments have re-emerged as the biggest worry among the owners of small businesses."

Legislation allowing firms to charge interest on late payments is to be introduced in August, three months ahead of schedule, in a bid to crack down on late payers.

As from August 8, all firms paying their bills late could find themselves being charged for their lateness.

The ruling was introduced by the European Commission (EC)

two years ago, initially giving small firms a statutory right to claim interest from large businesses and the public sector.

In November 2000, the second phase allowed small businesses the additional right to claim interest from other small businesses on debts incurred under contracts agreed after that date.

The third phase was due to be implemented in November this year, gives all businesses and the public sector the right to claim interest from all other public and private sector undertakings.

The EC has brought forward the final phase to give all firms the right to charge interest at a rate of up to seven per cent over base rate, currently four per cent in the UK.

The move has been criticised by Worthing-based credit management consultant Derek Scott who said the legislation would make little difference because small firms fear bullying and reprisals if they assert their new rights against large customers.

He said: "Legislation has made little progress and is going nowhere."

According to Mr Scott, some of the biggest companies make use of delayed payments to improve their balance sheets and small firms keep quiet they want more business.

He said: "It doesn't work now, and never will. Commercial clout will always rule."

But the legislation is backed by the Better Payment Practice Group.

Professor Nick Wilson, member of the group, said:

"There is clearly a growing trend among businesses to take advantage of the legislation as useful credit management tool.

"Rather than being used as last resort measure when an invoice is late, the true value of the legislation is its ability to give extra bite to collection procedures."