The deadline for resolving a multi-million pound dispute between accident management companies and insurers is looming.

Despite weeks of heated discussions, the Association of British Insurers (ABI) and the Accident Management Association (AMA) have failed to agree on penalty charges for late payment. The current agreement is due for renewal on 1 July.

The AMA wants hefty increases in charges that already cost insurers tens of millions of pounds a year.

Under existing terms of agreement, insurers pay a penalty of 7.5% interest if they fail to pay accident management companies for their services within 30 days and 15% if they fail to pay within 60 days.

About 100,000 cars a year are hired out under the general terms of agreement (GTA). The GTA covers replacement vehicles and repairs for innocent third party motorists involved in accidents.

AMA director general Tony Baker said less than a third of credit hire organisations' bills to insurers were paid within 30 days and 40% were still outstanding after 90 days, when creditors face having to go to court to get their money back.

Negotiations between the two sides have centred on cutting paperwork as well as pushing up the penalty fees.

Baker said the AMA wants a "significant" rate increase with discounts for prompt settlement. He said there was "great willingness on both sides" to solve the problem.

A memo produced after a meeting with the ABI in May, reveals there was a "very full and frank discussion" on the GTA and other issues.

An ABI spokesman said the negotiations were continuing. He said: "We want to encourage more dialogue to make sure the agreement works and we accept we have to look at the penalty issue."