The Post Office has climbed down over its demand for hundreds of thousands of pounds in backdated charges from retailers for supplying cash to their free Hanco ATM machines.

The backdated charges have been axed after weeks of discussions between the National Federation of Sub-Postmasters (NFSP) and the Post Office.

"From September they will collect on a monthly basis," said NFSP assistant general secretary Marilyn Stoddart.

From this month retailers will have to pay 23p per £100 dispensed.

The cash machines were installed under an agreement in 2006 to distribute free-to-use ATMs to deprived areas. Hanco paid subpostmasters 11p per £100 dispensed, but the Post Office belatedly decided to charge retailers 23p per £100.

Ashok Pandey, who runs Sycamore Avenue PO in Johnston, Renfrewshire, said paying the ongoing cost would be difficult. "Thank heavens I don't have to pay back charges of more than £3,000, but in future I will have to pay."