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The government is planning to make all firms working on public sector contracts pay their suppliers within 30 days as part of measures to improve cash flow for SMEs.

Last month the government published ‘Building a responsible payment culture’ which set out ways to improve payment conditions across all sectors.

One of the government’s proposals is that companies working on public sector contracts would need to pay their subcontractors, all the way through the supply chain, within 30 days.

It also proposed that public sector clients should publish details about their payment performance to encourage accountability. It said that it would pilot a rating system for public bodies to allow firms to easily know which were the best payers.

The consultation document did say successive governments, as well as the European Union,
have recognised the damaging effect that a culture of late payment has on growth by imposing general and sector-specific legislation in order to protect businesses.

The proposal says the amount owed to small and medium sized businesses in late payments stood at £30.1bn in February 2013. The consultation closes on 31 January.