Despite a better economic picture in the UK, businesses are reporting a steep increase in the number of clients paying late.

Late payment is a perennial problem for small businesses because it damages cash-flow and wastes time chasing debts.

New research from the Forum of Private Business (FPB) shows 23 per cent of its members reported an increase in late payment in the past 12 months.

That compares unfavourably with only three per cent who notice payment times shortening.

FPB boss Phil Orford said: “Upwards of £30 billion remains tied up in late payments, costing a typical small business 130 hours a year to chase and meaning that a third are forced to seek external finance to cover the gaps in cash."

Small businesses have plenty of ideas to lessen the problem, with 39 per cent of FPB members saying prompt payment should be promoted better.

Some 37 per cent wanting rule changes on VAT meaning they only pay when money enters the account, rather than at the point when an invoice is issued.

Meanwhile, 36 per cent want to see persistent offenders barred from applying for government contracts.