Large firms will face a crackdown on late payments to small businesses as part of a new package of Government support to tackle the issue, which Sir Keir Starmer said is “one of the biggest reasons businesses collapse”.

Small businesses have long been calling for rules to clamp down on late payments of invoices, the Labour Government said.

It refers to when another business is late paying for goods or a service, and can leave smaller suppliers cash-strapped while they await the money they are owed.

The issue is costing small businesses £22,000 a year on average, and leads to 50,000 business closures a year, according to the Department for Business & Trade (DBT) and research from the Federation of Small Businesses.

The Government said it was consulting on “tough” new laws that will hold larger firms to account and ensure cash flows into businesses.

The consultation is set to consider a range of policy measures that could help address poor payment practices.

In the meantime, new rules will be introduced in the coming weeks that will require all large companies to include payment reporting in their annual reports.

This is intended to increase the transparency of their treatment of smaller firms, and therefore hold them more accountable.

Sir Keir said “stamping out late payments” was “at the heart” of the Government’s ambition to help small businesses grow.

“Late payments cost businesses tens of thousands of pounds and is one of the biggest reasons businesses collapse,” the Prime Minister said.

“After years of delay, we’re bringing forward measures that small businesses have long been calling for to tackle late payments once and for all.”

Addressing late payments was a key part of Labour’s general election manifesto.

Business Secretary Jonathan Reynolds said late payments were “simply unacceptable”, adding: “When the cashflow runs dry, small firms go under which is why we need to hold larger business to account with their payment practices and foster an environment that supports growth and jobs.”

As well as the consultation and legislative changes, the DBT said it will step up enforcement action against large companies that do not report their payment performance on the government website.

These company directors can face criminal prosecutions and potentially unlimited fines under current laws.

Furthermore, a new Fair Payment Code will be introduced, which will see businesses awarded gold, silver or bronze status over their payment standards.