Late payment crackdown welcomed as directors face growing personal risk

Purbeck Insurance Services has welcomed the Government’s proposed Small Business Protections Bill, describing it as an important step towards tackling the growing pressure late payments place on UK SMEs and their directors.

The legislation, announced as part of the Government’s plans to strengthen protections for smaller businesses, aims to address what ministers describe as a late payment crisis costing the UK economy billions of pounds each year.

Purbeck Insurance Services, the UK’s only provider of personal guarantee insurance to SME owners and directors, said the reforms could help reduce the number of businesses forced into increasingly risky borrowing simply to manage short-term cashflow pressures.

“Late payment is one of the key reasons otherwise viable firms find themselves forced into increasingly risky borrowing simply to survive,” he said.

“Our latest data shows that 35% of SMEs seeking finance are doing so purely for working capital to keep the lights on and wages paid. At the same time, we have seen a record surge in directors seeking protection against personal guarantee risk because so many business owners are having to put their homes, savings and personal finances on the line to secure essential funding.”

Davison said the personal consequences of business failure were often overlooked in wider economic debates around SME finance and insolvency.

“Every business failure is not just an economic statistic, it is a personal tragedy for the people who have backed their businesses with their own financial security,” he said.

“Behind every collapse is an entrepreneur, family or business owner who has taken enormous personal risks to build something valuable.”

The Government’s proposed reforms include a maximum payment term of 60 days, mandatory interest penalties for late settlements and enhanced powers for the Small Business Commissioner to investigate and fine persistent offenders.

Davison said improving payment culture across the economy could significantly reduce pressure on smaller firms already operating in difficult trading conditions.

“The Government’s focus on improving payment culture is therefore hugely significant,” he said.

“Faster payment practices and stronger protections for smaller firms could help reduce the pressure on businesses to take on emergency borrowing or expose themselves to unsustainable levels of personal liability.”

Despite ongoing pressures, Purbeck said there were still signs of resilience and growth ambition across parts of the SME economy, particularly within sectors including construction and manufacturing.

“While many SMEs are still borrowing defensively to manage cashflow pressures, we are also seeing encouraging signs of resilience and ambition, particularly in sectors such as construction and manufacturing, where businesses are continuing to invest in growth despite economic uncertainty,” Davison added.

“That entrepreneurial confidence deserves support, not a system that leaves smaller firms carrying disproportionate financial risk.”