British businesses are facing a late payments crisis, with £23.4 billion of invoices left unpaid over the last year.

But 2022 could be the year this problem is finally addressed. On 1 April 2022, new rules will require businesses to pay 90% of invoices within 60 days, or risk being excluded from public contracts.

From that data, companies bidding for government contracts must submit details of any payments of interest for late payments over the previous twelve months, as well as an explanation of why the delay in paying an invoice and “an outline of what remedial steps have been taken to ensure this does not occur again”.

A policy note detailing the new rules also contains a recognition of the “importance of prompt, fair and effective payment in all businesses”. The Small Business Commissioner has been surveying companies to understand the extent of the problem. Results of the study will be released later in the year.

There are at least 55.5 million small businesses in the UK, with 75% having no employees except for the owner.

When invoices go unpaid, small companies can face challenges meeting operating costs, servicing debt or paying employees and suppliers.

Late payments are a major problem for small businesses, with tens of thousands collapsing every year because their clients fail to settle invoices on time.

Research from Quickbook shows that the average British business is owed £31,055, with 71% of small business owners losing sleep due to money worries keeping them up at night.

The Federation of Small Businesses has warned that the “£23bn late payment crisis” has deepened during the pandemic, with the majority of small businesses (62%) facing late or frozen payments since the Covid-19 lockdowns began. It found that 50,000 businesses close every year due to late payments, “damaging Britain’s prosperity and threatening jobs”.

Liz Barclay, Small Business Commissioner, said: “Late payments threaten the survival of small businesses, so it is heartening to see the introduction of new procurement rules that assess the speed of bidders’ payments.

“The government has recognised the problems caused by late payments. Now the private sector should do the same by measuring details of the time taken to pay invoices as part of corporate ESG measures.”

The Co-operative Bank is working to develop technological solutions to the late payments crisis. It is celebrating its 150th anniversary in 2022 and remains committed to the fair treatment of its business customers today as it did when it was founded in 1872 as part of the wider co-operative wholesale society.

It has championed and pioneered sustainable banking for almost 30 years by supporting local communities, treating customers “fairly and honestly” and paying people a living wage.

As well as becoming carbon neutral and reducing the waste it sends to landfill to zero, it has worked alongside Amnesty International to fight injustice across the world and campaigned with Refuge to challenge economic abuse. The bank has also invested £1.7 million to support cooperative businesses since 2016.

These efforts were recognised by Sustainalytics, which gave The Co-operative Bank the highest ESG (Environmental, Social and Governance) rating of any UK high street bank.

Catherine Douglas, Managing Director, SME, at The Co-operative Bank, said: “The new rules on late payments are very welcome and will help to address this important issue. The statistics around late payments are startling. Yet it is important to look beyond the numbers and look at the human side of this crisis, which is affecting millions of hard-working people across the UK and having serious impacts upon their lives.

“The Co-operative Bank has a strong sense of community and is committed to the values and ethics that are such an important part of our heritage and how we do business. We put our customers’ needs at the heart of everything we do.

“We’re now working very closely with the wider industry to find solutions to this problem. The banking sector needs to come together to support small businesses with tools and strategies which directly address this challenge.

“There is no single way to improve this, because the needs of businesses are very different, so they need a variety of options and services that are appropriate. We appreciate that small businesses are too busy working hard and earning money to perform cumbersome admin tasks, which is why we’re steering them towards technological solutions.”

The Co-operative Bank is already offering innovative ways of helping companies get paid on time and cope with the issues caused by unpredictable income.

The Co-operative Bank is working with the banking technology platform provider BankiFi to develop tech which allows businesses to collect instant, secure and cost-effective payments from their customers.

It has also set out clear, easy-to-follow guidance for businesses on how to chase unpaid invoices, ensure clients make payments on time and lodge complaints through the UK Government’s Prompt Payment Code. The bank is working closely with smaller companies through in-person meetings and video calls to advise them of financial options which can help them cope with delayed invoice payments.

BankiFi’s solution to the problem of late payments is a Request to Pay (RTP) service called Incomeing, which it launched in association with The Co-operative Bank.

It allows businesses to send secure, real-time payment requests using text, email and WhatsApp, as well as QR codes which can allow simple face-to-face transactions. This means a business owner could meet a client in person, who can then pay an invoice simply by scanning the QR code.

The solution is powered by Open Banking technology and ensures funds are transferred into a chosen account immediately, boosting cash flow. Incomeing also generates invoices, streamlines the process of chasing late payments and automates financial admin through deep integration with all major accounting applications.

Mark Hartley, Founder & CEO, said: “We are an SME ourselves, so feel the same pain as other small businesses across the nation. We know exactly what it is like to be up late, worrying about cash and making sure we can pay our suppliers on time.

“The late payments problem isn’t new, but  through technology, government action and the work of ethical institutions like The Co-Operative Bank, I genuinely feel a solution is not just on the horizon – but here today.”