Small firms are starting to charge late-payers interest on outstanding debts.

Research by the Credit Management Research Centre showed the number of small firms which have taken advantage of the Late Payment of Commercial Debts Act had doubled.

One in ten firms said they had used it to claim interest on late-paid debts, compared to one in 20 polled a year earlier.

The survey revealed widespread knowledge of the first phase of the legislation.

As many as 93 per cent of firms were aware of the legislation and rights to claim interest from larger businesses and the public sector organisations that pay late.

It was particularly encouraging, said the CMRC, that more than one in three firms were using the legislation as a deterrent by informing debtors they charge interest as part of their standard collection processes.

Of the percentage that use the legislation in this way, more than one in two firms (52 per cent) made customers aware of the potential amount of interest charges.

The head of CMRC and a member of the Better Payment Practice Group, Professor Nick Wilson, said: "There is clearly a growing trend among small firms to take advantage of the legislation as a useful credit management tool.

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

The survey also examined attitudes regarding the impact of the legislation.

Although only four per cent of respondents indicated they had seen an improvement in payment times since the legislation was introduced, more than one in five believed the legislation will have an "advantageous" effect in the long term.

Professor Wilson said: "There's no universal or immediate panacea to the problem of late payment.

"But there is evidence some small businesses have found the legislation useful and regard it as contributing to a longer term culture change."