Nobody can say that running a small business is for the faint-hearted or the easily riled.

Even when everyone out there plays by the rules, risks are high. Last year, according to business consultants Dun and Bradstreet, there were 162,638 business failures in the EU or 3,127 a week. And times, save for the strength of the pound in the UK, have rarely been this good for Europe's small firms.

Yet, say small businesses, the practice is endemic. The last thing a supplier needs is for payment for an order, which has been promptly fulfilled, to be dragged out or even not honoured at all.

Even firms sitting on healthy cashpiles or with easy access to debt or generous shareholders find late payment a menace. Chasing invoices wastes management time and, since the missing cash will have to be replaced with bank debt, small-firm suppliers can only sit and watch as their customers eat into their net margin on the deal.

For companies in dog-eat-dog sectors or piling up debt in anticipation of payment for a fulfilled order, a single late payment can be the last straw. Yet, for many companies and especially those also operating on tight margins, late payment is standard form of business practice; a fact once admitted to embarrassing effect by Michael Heseltine, the former British deputy premier and now owner-chairman of the Haymarket Publishing group.

He once boasted that, in his early days in business, he had been adept at stringing along his creditors to avoid his own bankruptcy. His former business colleague Ian Josephs spelled out their tricks including posting cheques that needed two signatures but only signing once or ensuring that the numbers and figures did not match up.

When large firms with deep pockets press for long credit from their small suppliers, the problems are far worse. SME suppliers have already paid upfront to fulfil an order and are hit very quickly with cashflow problems.

With the creation of the single EU market, pressure has grown for all 15 member states to emulate practice in Denmark, Sweden, Germany, the Netherlands and France: a statutory right to interest on bills not paid within a set deadline.

A quarter of Greek and Italian businesses and more than 20% of SMEs in Portugal have to wait between 90 and 119 days for settlement of their bills, according to a survey by consultants Grant Thornton.

In the Nordic countries where statutory interest applies, the story is different. In Finland, businesses wait on average 26 days, followed by Norway with 31 days and Denmark with 33 days.

The Danes, who led Europe in this field, have a law providing that in the absence of any other agreement, interest is charged once payment becomes due. In other cases, interest is charged if a letter is sent requesting payment of the principal and indicating that interest will be charged a month from the date of the letter.

The rate is punitive: 6% above the Danish central bank's key discount rate. Many Danish firms go further, establishing in the conditions of sale that they will charge an extra 2% or 1.5% per month payable 30 days from the end of the month found on the invoice.

The UK was the latest to join the legislative bandwagon in 1998, setting an 8% charge on top of the Bank of England's repo rate (now 6%), and extending this punitive charge to SME debtors from today (1 November).

The legislation as it applied to big-business debtors has done the business, according to small-firms' lobby group, the Forum of Private Business. The FPB led the fight for a statutory right to interest for over ten years. The rules have now been in operation for two years and even though we have seen some big businesses try to get around the act, I think it has been well received, says Nick Goulding, the FPB's chief executive.

The FPB's latest research shows that for private businesses trading with big business and the public sector, the situation has improved. Although the situation between private businesses trading with one another has actually worsened, this should improve as the legislation is applied more generally.

Once the British government changed from right to left in 1997, the way was clear for a EU-wide law. With the ironing out of the last glitches between the European Parliament and government representatives, this is set to enter force from – at the earliest – 2001, with a 7% punitive rate on top of the European Central Bank's key refinancing rate, now at 4.75%.