Big businesses have been told to pay small suppliers within 30 days as the Government strengthened the Prompt Payment Code.
The Department for Business, Energy and Industrial Strategy said policy needed to be bolstered to protect small firms as poor payment practices are “still rife” across the UK.
It also told around 3,000 large firms signed to the code that personal commitments will need to be made by a chief executive, finance chief or director.
The firms will need to pay 95% of invoices to suppliers with 50 employees or fewer within 30 days, halving the current 60-day limit.
Companies will be removed from the payment programme and “named and shamed” if they fail to meet the limit, which will come into force in July.
Last year, Shell and BAE Systems were among the firms to be suspended from the code for failing to honour the pay commitment.
The Government said it also plans to increase the powers of the Small Business Commissioner as part of the overhaul.
It is the latest step by the Government to clamp down on large firms which are slow or late in paying commercial debts to smaller suppliers.
According to the Federation of Small Businesses (FSB), around 50,000 businesses close every year due to late payments.
Small business minister Paul Scully said: “Our incredible small businesses will be vital to our recovery from the coronavirus pandemic, supporting millions of livelihoods across the UK.
“Today, we are relieving some of the pressure on small business owners by introducing significant reforms to the UK payments regime – pushing big businesses to pay their suppliers on time.
“By signing up to the Prompt Payment Code and sticking to its rules, large firms can help Britain to build back better, protecting the jobs, innovation and growth which small businesses drive right across the UK.”
Interim small business commissioner Philip King said: “Late payment causes real hardship to small businesses, and the issue is more prevalent than ever due to the continued impact of the pandemic.
“Code signatories of all sizes demonstrate their commitment to ending the culture of late payment and helping to increase business confidence.
“I encourage businesses of all sizes to implement ethical business practices and sign up to become a code signatory and join us on our journey to aid business recovery post Covid-19.”
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