Late Payments, New Laws: And Why the Real Risk Hasn’t Changed

The Shift in the UK Payment Landscape

For many directors, late payment has always been part of doing business. A frustration. A delay. Something you work around.

But recent government interventions, including the Reporting on Payment Practices and Performance (Amendment) Regulations 2025, are changing how seriously these delays are treated. Under the Late Payment of Commercial Debts (Interest) Act 1998, companies can already be liable for “statutory interest” at 8% above the Bank of England base rate, plus debt recovery costs.

On paper, this looks like protection. A step towards fairness and a way to improve cash flow across UK businesses. But in practice? It does not address the underlying systemic problem.

The Reality Behind Late Payments: A Trigger, Not the Root

From thousands of conversations with directors at Bell & Company, one pattern continues to emerge: Late payment is rarely the problem on its own. It is the trigger. What follows is where the real risk sits.

“I didn’t get paid on one job… and that’s where it all started.”

This came from a director whose business had traded successfully for 14 years. One unpaid invoice led to a short-term loan. That loan created £8,500 in monthly repayments, which quickly escalated to £30,000 – £40,000 per month as additional borrowing followed.

Within a relatively short period, the business became unsustainable, not because it wasn’t viable, but because cash flow had been disrupted at a critical juncture.

Why New Rules Won’t Fix the Core Issue

The introduction of penalties may improve behaviour at the margins for larger “Scope 1” companies. However, it does not change the real-world trading environment where:

• Payments are still delayed through administrative “errors.”
• Disputes are used as leverage to delay settlement.
• Larger companies still dictate terms to smaller suppliers who fear losing the contract.
• Cash flow gaps appear without warning.

The Chain Reaction: From Commercial to Personal Risk

One of the most significant misconceptions directors have is where the corporate risk stops and personal risk begins. As outlined in the Insolvency Act 1986, once a company enters the “zone of insolvency,” a director’s duties shift from the shareholders to the creditors.

Failure to manage this shift can lead to:

• Statutory Demands: Formal 21-day notices that can lead to Winding-Up Petitions.
• Personal Guarantees (PGs): Moving liability from the company directly to your personal assets.
• Director Loan Account (DLA) Issues: If you have drawn funds while the company is insolvent, a liquidator can demand repayment, creating personal tax and debt exposure.
• Wrongful Trading: Potential personal liability if you continue to trade while knowing there was no reasonable prospect of avoiding insolvent liquidation.

What Directors Can Do Before Pressure Escalates

The most important factor in these situations is timing. Once legal action begins, your options narrow significantly.

Practical, high-authority steps include:

1. Early Communication: Transparent dialogue with creditors can often prevent the issuance of a Seven-Day Letter or Statutory Demand.
2. Liability Prioritisation: Identifying “Crown Debt” (HMRC) and “Ransom Creditors” (key suppliers) to maintain operations.
3. Understanding Exposure: Reviewing all signed contracts for Personal Guarantee clauses before the business reaches a point of no return.
4. Professional Intervention: Seeking structured advice before enforcement action begins.

Taking Back Control

At Bell & Company, we specialise in helping directors navigate these specific pressures. We don’t just look at the debt; we look at the strategy to:

• Manage creditor pressure before it escalates into court action.
• Structure realistic repayment or settlement strategies (such as Time to Pay arrangements).
• Protect personal assets and home equity where possible.

The Bottom Line

The risk has never been the invoice itself. It is what happens next. When the chain breaks, the exposure begins.

Need to discuss your specific situation? Our team provides clear, confidential guidance with no obligation.

📞 0330 159 5820