Companies which continually pay their suppliers late will face fines worth potentially millions of pounds, the prime minister has announced.

Sir Keir Starmer said “It’s time to pay up” as the government is set to unveil plans to give the small business commissioner powers to fine large companies that persistently pay their suppliers late.

Under the new legislation, businesses will have to pay their suppliers within 30 days of receiving a valid invoice, unless otherwise agreed, with spot checks to help identify breaches.

Maximum payment terms of 60 days, reducing to 45 days, will also be introduced as part of the legislation to ensure businesses are paid on time.

Late payments cost the UK economy £11 billion a year and shut down 38 businesses a day, the government said.

The new law will save small and medium businesses time so they can focus on growing their revenue, it added.

Sir Keir said: “From builders and electricians to freelance designers and manufacturers – too many hardworking people are being forced to spend precious hours chasing payments instead of doing what they do best – growing their businesses.

“It’s unfair, it’s exhausting, and it’s holding Britain back. So, our message is clear: it’s time to pay up.

“Through our Small Business Plan, we’re not only tackling the scourge of late payments once and for all, but we’re giving small business owners the backing and stability they need for their business to thrive, driving growth across the country through our Plan for Change.”

The late payment crackdown is part of a wider government package, including a move to pump £4bn of financial support into small business start-ups and growth.

This will include £1bn for new firms, with 69,000 start-up loans and mentoring support.

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The Conservatives said the crackdown will be welcome, but fails to address the “218,000 businesses that have closed under Labour”.

Andrew Griffith, the Tory shadow business secretary, added: “The reality for businesses under Labour is a doubling of business rates, a £25billion jobs tax and a full-on strangulation of employment red tape.

“Only the Conservatives are on the side of the makers and will support businesses across Britain to create jobs and wealth.”

Chancellor Rachel Reeves has increased employers’ national insurance, raised the minimum wage and lowered the threshold at which employers’ national insurance is paid.

The Resolution Foundation said this hits the cost of low-paid and part-time workers the most.