A hard-hitting report from the Business, Energy and Industrial Strategy Committee also demanded an end to early payment schemes which charge suppliers a fee to get their cash.
The report states: “We recommend that the Government moves as soon as possible to require all medium and large companies to adopt a statutory limit of paying within 30 days.
“This statutory limit must exclude the use of early repayment schemes or discounts to bring companies within compliance.”
The committee also demanded an overhaul of the retentions system to include project bank accounts.
It said: “Big companies have a vested interest in holding on to owed money for as long as possible to maximise interest.
“More disturbingly, as the collapse of Carillion demonstrated, there is a concern that many large companies at the top of the supply chain are building this into their business models and if they go bankrupt this money is lost to other creditors.
“This could be addressed by the introduction of independently managed project accounts, to hold retention money.
“We recommend that the Government should bring forward proposals as soon as possible to introduce compulsory project accounts so that retention money can be held independently and its release subject to fair and timely oversight.”
Rachel Reeves, Chair of the Business, Energy and Industrial Strategy Committee said: “Many SMEs are placed in a stranglehold by larger companies deliberately paying late and ruthlessly taking advantage of their suppliers, causing these firms financial instability.
“Unless the Government levels the playing field and acts to bring in a tougher regime for poor payment practices then we choke-off the opportunity for SMEs to invest and grow in the future.”
The report has been welcomed by industry payment campaigners,
Neil Walters, national chair of the NFB, added: “Late payers continue to win public work and small businesses are left begging for their hard-earned money.
“Voluntary reform is simply not working and the Government needs to wake up and legislate statutory requirements to make late payment a relic of the past.”
ECA Deputy Director of Business, and SME Business Adviser to the Cabinet Office Rob Driscoll said: “This is a significant milestone.
“Government is now setting the tone for acceptable supply chain payment behaviour, and realising its role as a leading and responsible client in the post-Carillion era.”
To read a full copy of the report click here