New Government plans to crack down on late payments could see public sector outsourcers who take months to pay their own suppliers, being blocked from bidding for new contracts.

From next autumn procurement bosses will be expected to assess whether or not suppliers on contracts worth more than £5m per year have “robust measures” to ensure subcontractors are paid on time and are settling 95% of their invoices within 60 days of receipt.

Cabinet Office minister Oliver Dowden, said those who are found to be paying their suppliers later “could stop winning public contracts altogether – until they clean up their act”.

The move follows the collapse of Carillion, a major Government contractor that maintained schools, prisons and hospitals, in January, which has since been accused of hiding the true scale of its debts by using supply chain finance, as suppliers were forced to either use the scheme or wait 120 days to be paid.

FIS chief executive said “At the end of the day any focus on poor payment is welcome, but again whilst we support the approach the language is still a bit woolly, I’d be happier to see the word ‘could’ replaced with ‘will’.  Payment remains a real cancer at the core of construction that undermines a healthy culture’.

Martin McTague of the Federation of Small Businesses said the new rules would “send a clear message that paying late is not okay.”

He added: “Measures to open up public procurement give tax payers and our public services access to the innovation and value small firms bring, as well as helping our economy.”

The new rule is the latest in a series of efforts by the Government to crack down on late payments, which are estimated by the FSB to have caused cash flow problems for more than one third of small firms.

Paul Uppal, a former Tory MP and small business owner, was appointed the first Small Business Commissioner last year with a specific remit to tackle the problem. In October ministers vowed to pay 90% of small central government suppliers within five days.

Mr Dowden said: “Companies providing crucial services to the public sector, like supporting prisons and delivering road infrastructure projects, must be paid on time.

“Paying invoices promptly is vital in providing healthy cash flow, particularly for smaller businesses who are the backbone of the UK economy, to help them survive and thrive.