Major contractors could be barred from bidding for public sector contracts worth over £5m a year if they cannot prove they pay their supply chain within an average of 60 days.

The Government is proposing changes to procurement law that would force all public contracting authorities to exclude firms that fail to meet the payment benchmark.

The shake-up is aimed at stamping out late payment across the wider public sector and delivering better cashflow for small businesses.

It builds on current rules for central government contracts, where suppliers must already pay 95% of invoices within 60 days, averaging 45 days overall.

Under the new plan, the rules would apply to all invoices a business pays, not just those linked to public work.

Contracting authorities would have to apply the new rule on a ‘comply or explain’ basis, giving them a get-out clause where excluding a bidder would reduce competition or value for money.

The rule will initially only apply to payment records exceeding 60 days but Ministers will be given powers to lower that threshold in future to ratchet up pressure on poor payers.

The consultation document says: “Linking performance to the average time taken to pay invoices, will make it easier to change the threshold downwards in the future, and drive future performance improvement.

“Starting at 60 days, rather than the current 45 days used by central government departments, will allow for performance improvement without impacting delivery of essential services.”

The proposal is part of a wider government plan to drive cultural change in commercial behaviour and back stronger supply chain resilience in public procurement.