Late payment has been a perennial problem for smaller businesses, but new legislation progressing through Parliament could give SMEs significantly more power to fight back.
The Commercial Payments Bill reaches report stage in the House of Lords on 15 September. The Government describes it as the most significant step to tackle late payment in more than 25 years.
The scale of the problem is considerable. Evidence cited by Parliament suggests that 44% of invoices issued by SMEs are paid late. Late payments are estimated to cost the UK economy £11 billion a year and contribute to around 14,000 business closures annually – equivalent to some 38 businesses every day.
The proposed law goes considerably further than previous attempts to encourage better payment behaviour.
As currently drafted, the Bill would impose a maximum payment term of 60 days for most business-to-business contracts, subject to limited exemptions. There is already pressure in the Lords to go further, with an amendment proposing to reduce the term to 45 days.
It would also make interest on late payments mandatory, at 8% above the Bank of England base rate. At present, many smaller suppliers are understandably reluctant to exercise their existing right to charge statutory interest, particularly where they depend on a much larger customer for continuing business.
The Bill also proposes significantly stronger powers for the Small Business Commissioner. These would include investigating persistent poor payment practices, taking enforcement action and imposing financial penalties. The Commissioner would also be able to adjudicate contractual payment disputes between small and larger businesses outside the courts and make binding interim decisions.
Large businesses would face greater scrutiny too. New reporting requirements are planned, including disclosure of interest paid and owed on late payments. Boards or audit committees of persistently late-paying large companies would be required to explain publicly why their payment performance is poor and what they are doing about it.
For the construction sector, where payment practices have long been particularly contentious, the Bill would also outlaw the deduction and withholding of retention payments, although the timing of that measure would be subject to further consultation.
None of this means the UK’s late-payment problem will disappear overnight. The legislation’s provisions will not operate retrospectively. The Government has also promised a transition period before the new regime comes into force.
But the direction of travel is clear. For years, much of the policy response to late payment has relied upon transparency, codes of conduct and persuading larger businesses to behave better. The new legislation introduces considerably more compulsion.
That matters because late payment is not simply an administrative nuisance. For a healthy business it can be frustrating; for one already operating with limited headroom, it can be existential.
An apparently profitable company can still fail because the cash it is owed does not arrive quickly enough to meet wages, tax, rent and suppliers. The position becomes still more dangerous when businesses compensate by stretching their own creditors, creating a chain of financial stress through the supply chain.
For directors of SMEs, therefore, stronger statutory protection should not be an excuse to relax credit control. Businesses should continue to invoice promptly, monitor ageing debts, enforce agreed terms and act quickly when a customer begins slipping beyond them.
The Commercial Payments Bill may give smaller businesses some much-needed additional teeth. But legislation cannot substitute for knowing exactly who owes your business money, when it should have been paid – and whether you can afford to wait for it.
The hidden risk of personal guarantees
Running a limited company normally provides an important dividing line between the finances of the business and those of its directors. A personal guarantee (PG) can punch a sizeable hole through that protection.
That matters particularly now, as cash-strapped SMEs increasingly turn to external finance. Recent figures from PG insurance provider Purbeck show applications for personal guarantee-backed borrowing rose 63% year-on-year in the second quarter of 2026. The average loan value was £317,000, remaining above £300,000 for the second consecutive quarter.
Working capital was the biggest reason for borrowing, accounting for more than a third of applications. In other words, directors are not necessarily putting their personal assets behind ambitious expansion plans or acquisitions. Many are borrowing simply to fund the day-to-day costs of keeping their businesses trading.
PGs are common in SME finance. Banks and other lenders may require them for loans and overdrafts, while they can also arise in asset finance, commercial leases and supplier arrangements.
The principle is straightforward. A limited company’s debts ordinarily belong to the company. But where a director has personally guaranteed a particular debt, the creditor can pursue the director if the company fails to pay it.
The Insolvency Service warns that personal assets including a home, car, savings and investments can potentially be exposed. If the guarantor cannot meet the liability, personal bankruptcy can ultimately follow.
Guarantees also vary considerably. They may be secured against a particular personal asset or unsecured; capped at an agreed amount or potentially much wider; and where several people give a guarantee, liability may be joint and several. That can leave one guarantor pursued for the full outstanding sum rather than simply his or her perceived share.
Courts take guarantees seriously
A recent High Court case provides a useful reminder of the potential consequences.
In Rich v JDDR Capital Ltd, a company had received a £500,000 short-term loan backed by joint and several PGs from its two directors. Following default, the amount demanded from one of the guarantors had risen to £920,000 including interest.
The directors sought to resist enforcement, relying in part on an alleged understanding that the loan would ultimately be converted into equity. The court rejected their arguments. The guarantees had been formally executed, and the directors had received independent legal advice.
The case should not be taken to mean that every personal guarantee is automatically enforceable regardless of its circumstances. But it does underline the danger of assuming that informal conversations or understandings will override clear commercial documents once things go wrong.
Know your exposure before trouble starts
For directors of businesses experiencing financial pressure, the important point is to understand PG exposure early.
A guarantee signed several years ago can easily recede from view while the business is trading normally. Directors may also have signed several guarantees at different stages of a company’s development – perhaps for an overdraft, finance agreement, property lease and subsequent borrowing – without ever considering their cumulative personal exposure.
That is precisely the wrong time to discover the position: after cash has run out and creditors have begun making demands.
Directors should therefore know which company liabilities they have personally guaranteed, to whom, for how much and on what terms. They should also understand whether guarantees are secured against particular assets and whether liabilities are capped or unlimited.
This becomes especially important when considering additional borrowing to prop up a struggling business. New finance may provide valuable breathing space and sometimes help a viable company through a temporary cashflow problem. But if it merely postpones an unavoidable insolvency while transferring more of the risk from the company to its directors personally, the consequences can be severe.
Taking early restructuring and insolvency advice can therefore be important for the individual as well as the business. Options that may still be available while a company has cash, time and creditor goodwill can disappear surprisingly quickly.
Limited liability remains one of the fundamental protections of incorporating a business. But directors should never assume it protects them from every company debt.
When trading conditions become difficult, knowing exactly what you have signed can be every bit as important as knowing what the company owes.
Related-party transactions go under the microscope
The collapse of litigation funder Woodville Consultants has provided a striking reminder that, when a company becomes insolvent, attention quickly turns not only to what it owes, but to where its money went.
Woodville entered administration in July owing almost £299 million to unsecured creditors. Its administrators are now investigating some £37 million of loans and advances to connected parties, including businesses associated with the company’s directors and management.
The administrators have said the purpose, commercial rationale and recoverability of these transactions remain under review. One connected company alone reportedly received £17.6 million.
There is no suggestion that a transaction is improper simply because it involves a director, shareholder or another company under common ownership. Related-party transactions are commonplace, particularly among owner-managed businesses and groups of companies.
But when a business subsequently enters administration or liquidation, transactions undertaken before its failure can look very different.
An insolvency practitioner has a duty to investigate the company’s affairs and seek to recover assets or money where appropriate for the benefit of creditors. That can involve looking backwards at transactions completed months or even years before the formal insolvency.
What will an insolvency practitioner look at?
The Insolvency Act gives administrators and liquidators powers to challenge certain “antecedent transactions” – transactions which took place before insolvency and may have disadvantaged creditors.
These include transactions at an undervalue, where a company has given away an asset or transferred it for significantly less than its true value.
They also include preferences. Broadly, a preference can arise where a company does something which puts one creditor, surety or guarantor in a better position than they would otherwise have been in if the company entered insolvent liquidation.
For directors of owner-managed businesses, this can raise some uncomfortable questions.
Was a loan to a director or another group company properly documented? Was an asset transferred between connected businesses at a proper commercial value? Why was one creditor repaid while others remained outstanding? Did the company repay money owed to a director shortly before it failed? Were payments made to relatives or businesses associated with management, and what did the company receive in return?
None of those circumstances necessarily indicates wrongdoing. The issue is whether the transaction was legitimate, properly recorded and commercially justifiable. Perhaps most importantly, what the company’s financial position was at the time.
Connected parties receive particular scrutiny
The rules deliberately treat some transactions involving connected parties differently.
For example, the relevant look-back period for a preference involving a connected person can extend to two years before the onset of insolvency, compared with six months for an unconnected party.
Where a preference is given to a connected person, the law can also presume that the company was influenced by a desire to put that person in a better position, unless evidence demonstrates otherwise.
Transactions at an undervalue involving connected parties similarly attract particular scrutiny, including a presumption concerning the company’s solvency which may have to be rebutted. This is one reason why proper records matter.
A transaction that made perfectly good commercial sense at the time may be much harder to explain two years later if there is no agreement, board minute, valuation or other contemporaneous evidence showing why it was undertaken and on what basis.
Don’t wait for insolvency to tidy the paperwork
The Insolvency Service has recently reiterated its warning to directors that transactions made before administration or liquidation can be challenged and money or assets recovered for creditors. Director disqualification and other consequences can also potentially follow.
This does not mean directors of financially stressed businesses should become paralysed and stop making commercial decisions.
Companies frequently need to sell assets, restructure arrangements within a group, negotiate with creditors or move resources around as part of a genuine attempt to survive. But as financial pressure increases, directors need to be particularly careful about the decisions they make and the interests they are seeking to protect.
A payment that seems sensible because it keeps a friendly supplier onside, repays money advanced by a director or protects another business within the same group may look rather different if the company enters insolvency shortly afterwards.
The Woodville case involves unusually large sums and its administrators’ investigations are continuing. But the underlying lesson applies just as readily to a small owner-managed company.
When insolvency arrives, the officeholder does not simply take a snapshot of the business on the day of appointment. They look backwards.
Directors who know that their company is experiencing serious financial difficulty should therefore take advice before undertaking unusual transactions, particularly those involving themselves, family members, shareholders or connected businesses.
And if a transaction is commercially justified, document why. The explanation that seems obvious today may be considerably less obvious when somebody else examines it two years from now.
Companies House identity checks: don’t miss the deadline
Millions of company directors and owners face a Companies House identity verification deadline this autumn as one of the biggest reforms to the UK corporate register reaches the end of its transition period.
Mandatory identity verification began on 18 November 2025 under reforms designed to combat fraud and the misuse of UK companies.
But that date was the beginning, rather than the end, of a 12-month transition period for existing directors and people with significant control (PSCs). Companies House expects between six and seven million people ultimately to require verification by November 2026.
By the end of March, 3.8 million personal identity codes had been issued and linked to 3.7 million company appointments. That still leaves a considerable number of directors and business owners needing to ensure that they comply over the coming weeks.
For most people, the process itself should be relatively straightforward. The greater danger may simply be overlooking it.
What do directors need to do?
Existing directors must verify their identity and provide their unique Companies House personal code as part of their company’s next confirmation statement.
The code is an 11-character identifier issued once an individual has successfully verified. Importantly, it belongs to the individual rather than the company.
Someone who is a director of several companies therefore only needs to verify their identity once. The same personal code can then be used to connect that verified identity to each directorship.
From November 2025, newly appointed directors have had to provide their personal code as part of the appointment process, while codes for directors of newly incorporated companies are required as part of the registration.
Identity can be verified directly through GOV.UK One Login, using appropriate identity documents, or through an Authorised Corporate Service Provider (ACSP). These are Companies House-authorised agents and may include accountants, solicitors and company formation agents.
PSCs have separate requirements
The rules for people with significant control require particular care.
A PSC must verify their identity and provide their personal code to Companies House during a specified 14-day period.
For someone who is both a director and a PSC of the same company, the code has to be provided separately for each role. The director requirement is dealt with through the company’s confirmation statement; the PSC requirement is completed separately through the Companies House service.
For an existing PSC who is not also a director of the company, the relevant 14-day period falls at the beginning of their birth month.
Businesses should therefore not assume that dealing with identity verification for the directors automatically takes care of the PSC requirements as well.
What happens if you don’t comply?
This is not an optional administrative exercise.
Companies House says that failing to meet the identity verification requirements on time may constitute an offence and can lead to prosecution, court fines or financial penalties.
A director who continues to act after their deadline without complying may be committing an offence. The company and its other directors may also be committing offences.
There is also a very practical consequence. Companies House will not accept a company’s confirmation statement unless all of its directors have verified their identities and the necessary personal codes are provided.
Failure to file a confirmation statement brings its own risks, including financial penalties and potentially the company being struck off the register.
Companies House has shown increasingly clearly that it is prepared to use its enforcement powers. In the first half of 2026 it prosecuted hundreds of directors for filing offences, with 23 directors disqualified for a combined 70 years for persistent or serious non-compliance.
A small job that is worth doing now
For most well-run businesses, identity verification should be little more than another compliance task.
But it is precisely the sort of relatively simple job that can become considerably more troublesome if it is ignored until a filing deadline arrives.
That is especially true for companies already experiencing financial pressure. A business seeking new funding, negotiating with creditors, restructuring its affairs or simply trying to preserve management time does not need an avoidable Companies House compliance problem added to the list.
Directors should therefore check now whether they and any PSCs have completed the necessary verification, make sure personal codes are safely recorded and understand when those codes must be supplied to Companies House.
Businesses using accountants or other company secretarial advisers should also establish who is responsible for what rather than assuming the adviser has dealt with it automatically.
The new regime is intended to make it harder to hide behind false identities and to improve the accuracy and credibility of the UK companies register. For legitimate businesses, compliance should generally be straightforward.
But with the transition period moving towards its conclusion, “I didn’t realise I had to do it” is becoming an increasingly risky excuse.
As ever, the Buchler Phillips approach to business challenges is ‘workout, not bail out’. Don’t hesitate to get in touch for an exploratory chat if your business needs help. Addressing the cracks now will, in many cases, avoid the need to start again.
Our helplines below are open for free initial consultations.
Jo Milner 07990 816904
David Buchler 07836 777748
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About Buchler Phillips
Buchler Phillips is an independent, UK based corporate recovery and restructuring firm, with an impeccable Mayfair heritage dating back to the 1930s.
Led by David Buchler, former Europe and Africa chairman of global consultancy Kroll Inc, our senior team is equally comfortable advising large corporations, Small & Medium Enterprises (SMEs) or individuals. In addition to decades of experience, each of our Partners brings to any given assignment unique independent insight, free from conflicts of interest, that is often sought but rarely found by clients or co-advisors.
The firm is sector-agnostic, but has particularly strong credentials in property; financial services; professional services; leisure and hospitality; retail and consumer; UK sports; media and entertainment; transport and logistics; manufacturing and engineering; technology and telecoms.
Our activities fall broadly, though by no means exclusively, into financial restructuring, including fraud and forensic investigations; operational restructuring and turnaround; expert witness services and recovery solutions for corporates and individuals.
This newsletter is published for the purposes of general information only and does not constitute advice. Any action taken by readers upon the information above is entirely at their own risk.