Late payment remains a serious problem for small firms, the Federation of Small Businesses has warned.

Almost three quarters (73%) of businesses have been paid late in the last 12 months, according to a new paper by the Federation of Small Businesses (FSB) and for the majority (77%), it is by other businesses.

Small firms do not have the same cash-flow buffers as larger businesses and so being paid late causes a vicious circle, meaning that 38% of members that are paid late say they then pay their suppliers late. 

The survey showed that 43% of members are currently waiting for between £1 and £4,999. In the past 12 months, 56% of members have written-off invoices worth between £1 and £9,999 because of non-payment, and 6% of members in the construction sector have written off £35,000 or more. 

The FSB is calling on the government to ensure that all contractors used by the public sector pay their sub-contractors within the same time; and that all private sector companies used by the public sector sign up to the Prompt Payment Code. 

With 53% of small business owners saying they spend between one and six hours per week chasing late payments, FSB recommends that firms can take control by putting late payment charges into the initial contract along with an agreed payment schedule; offering a discount for prompt payment where appropriate; asking for payment up front, or a deposit before work begins.

John Walker, FSB national chairman, said: "There are always going to be companies that pay late, but there are steps that businesses can put in place to make sure that they don't fall foul of the issue. In the current economic climate, every penny counts and for small businesses a late invoice can mean not being able to pay their staff."