Prime Minister Kier Starmer is leading the charge, promising tougher new rules and proper enforcement of existing legislation.

He said: “We’re determined to back small businesses by unlocking their barriers to growth, and stamping out late payments is at the heart of this.

“We know how important it is for business owners to have the peace of mind and certainty around their cashflow to keep their businesses alive. Late payments cost businesses tens of thousands of pounds and is one of the biggest reasons businesses collapse.

“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.”

A new Fair Payment Code will replace the old Prompt Payment Code, and will be open to signatories this autumn.

It will be designed to push businesses to pay faster more often and they will be awarded either gold, silver or bronze status.

New legislation being brought in the coming weeks will require all large businesses to include payment reporting in their annual reports – putting the onus on them to provide clarity about how they treat small firms.

Enforcement will also be stepped up on the existing late payment performance reporting regulations which require large companies to report their payment performance twice yearly.

Responsible directors at non-compliant companies who don’t report their payment practices could face criminal prosecutions including potentially unlimited fines and criminal records.