Big companies are delaying payment to smaller suppliers by more than 100 days in the biggest squeeze on small firms' cashflows since the early 1990s.

Over the past few months, business groups have reported that some of their members are having to wait longer for payment, but Britain's leading small business lobby group says that the practice has now reached “outrageous proportions”.

The Federation of Small Businesses (FSB) says that the situation has worsened dramatically in the past few weeks, with some members facing a wait of well over three months to be paid for goods or services provided.

John Wright, chairman of the FSB, said: “Big companies appear to be aware that small businesses are afraid of taking them on over payment terms and are abusing their power as a result. Making small businesses wait 105 days for payment and charging them for the privilege of doing so is nothing short of outrageous.

“At a time when small businesses are finding it difficult to deal with a slowing economy and rising costs, it is shocking that large companies think it is acceptable to use them as an unofficial source of credit.”

The FSB said that it is concerned that big companies are starting to formalise longer payment periods, rather than merely settling their bills later in an ad hoc way.

Stephen Alambritis, the FSB's head of government affairs, said: “Many seem to be using the credit squeeze as an excuse to put in place permanent arrangements for long payment periods.”

The FSB took the unusual step of highlighting Alliance Boots, the retailer, as one of the worst payers. The retailer was taken over by a private equity-backed consortium last year. The FSB said that Boots had recently extended its terms, offering payment 75 days after the end of the month in which an invoice is received, and charging a 2.5 per cent settlement fee.

The terms mean that if an invoice is submitted on the first day of a month, it would take 105 days - 75 days of the term plus 30 for the month.

Small companies have a legal right to charge interest on late-paid bills, but are often reluctant to do so, especially to big customers, because they fear losing their business. By extending payment periods, large companies improve their short-term cashflow - and may be tempted to do so if feeling effects of the broad credit crunch.

Alliance Boots said that it had “aligned its arrangements with suppliers on a group-wide basis”. It said that its “procurement strategies are in line with other groups of similar size”.

According to the Institute of Credit Management, the average payment period across all FTSE 100 and FTSE 250 companies is 34 days. For all plc businesses it is 44 days.

Late payment will do little for business confidence. Nearly two thirds of insolvency practitioners have seen business soar in the past three months, according to R3, which represents 97per cent of UK insolvency practitioners, with estate agents, housebuilders and pubs badly hit. According to Lloyds TSB's Business Confidence Index, firms' optimism for the next six months is lower than at any time since the index began in 1992, with 8 per cent more firms expecting profits, sales and orders to fall rather than rise.

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