The Cabinet Office has written to more than 10,000 businesses to warn that they must pay their suppliers on time or face being prevented from winning further government contracts.
Under new rules which come into force this autumn, suppliers who bid for government contracts above £5m per annum, who cannot show they are paying 95% of invoices within 60 days, could be prevented from securing government contracts.
Minister for Implementation Oliver Dowden said: “Prompt payment is critical for all companies helping to deliver public services, particularly small businesses which are the backbone of our economy.
“That’s why, from September, if government contractors are late with supplier payments, they could be prevented from winning public contracts until they clean up their act.”
Ministers believe the measure will supplement other moves to level the playing field for small businesses, including an ambition to pay 90% of the government’s undisputed invoices from SMEs within five days, and requiring strategic suppliers to advertise supply-chain opportunities worth more than £5m on the government’s Contracts Finder website.
Suppliers that are not being paid on time are also able to raise complaints and concerns directly to the government through the Public Procurement Review Service, formerly called Mystery Shopper. The Cabinet Office claims that this service has, since 2011, helped speed up payment of over £6.7m stemming from government contracts.