Some of the biggest Government contractors face being barred from public sector contracts if they fail to start paying small businesses on time.

From September, outsourcers which do not pay 95pc of small business subcontractors within 90 days could be frozen out of public sector procurement, according to Cabinet Office plans. The rule would apply to all contracts worth more than £5m in the £50bn Government procurement sector.

Outsourcers including Kier, Balfour Beatty, Mitie and Capita have fallen below the 95pc threshold, according six-monthly data collected by the business department, and would be excluded from bidding for new contracts.

Last week, the Government announced that large companies which pay small businesses late could be fined under new powers given to the Small Business Commissioner. But professional associations and payment platforms say the Government late-payments crackdown does not go far enough. All large companies should be forced to pay small business suppliers within 30 days, they say.

“We expect [all companies] to meet the 60-day target and, if they don’t, they may not be considered for public sector contracts,” small business crown representative Martin Traynor told the Sunday Times.

Traynor said the government would continue to work with companies that cold prove they had a strategy in place for improving payment practices, but added that those unable to show progress would be barred.

“If you can’t satisfy the people you are procuring, then you won’t be bidding for it,” he said.

Mike Cherry, chairman of The Federation of Small Business, accused outsourcers of “clutching taxpayers’ money to improve their cash flow”.

Cherry said that when Government pays its outsourcers within five days, there is no excuse for them to sit on these funds. “Those who fail to comply … should be in no doubt of the consequences,” he warned.

Further reading

How to tackle late payments to your small business