The UK will strengthen its Prompt Payment Code (PPC) to push larger firms to pay small businesses quickly.
Under the changes, large companies that have signed up to the code must pay small businesses within 30 days instead of 60.
The government estimates there are £23.4bn worth of outstanding late invoices.
The issue is more prevalent than ever due to the impact of the pandemic.
The small business minister Paul Scully said the changes would help the UK’s economic recovery.
“Our incredible small businesses will be vital to our recovery from the coronavirus pandemic, supporting millions of livelihoods across the UK,” he said, in a media release.
The voluntary code currently has more than 2,800 signatories, who are required to pay 95% of their invoices within 60 days or else be publicly struck off the code until they make substantial changes to their payment practices.
Under the changes, payments to firms with fewer than 50 employees must be made within 30 days, but the 60-day deadline will remain for larger companies.
Also, a company’s chief executive or finance director must personally sign onto the code, to ensure good payment practices are taken seriously at the highest level of the company.
The changes also allow suppliers to charge interest on late invoices and enable administrators to investigate breaches based on third party information.
The government will continue to publicise the names of signatories found in breach of the code.
“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,” said Interim Small Business Commissioner Philip King.
According to the Federation of Small Businesses (FSB), about 50,000 businesses close every year due to late payments, damaging Britain’s prosperity and threatening jobs.
“Ending our pernicious poor payment culture for good over the coming months will be fundamental to turning our hopes of economic recovery into reality,” said FSB National Chairman Mike Cherry.