The small business commissioner will be given sweeping new powers to investigate poor payment practices, adjudicate payment disputes, and fine the worst offenders – with fines worth tens of millions of pounds for firms that persistently pay late or fail to comply with the new laws.

Some 38 businesses shut their doors every single day because they are not paid on time – the equivalent of 266 a week, and well over a thousand in any given month.

The changes will include a new 60-day cap on payment terms on all large firms when paying smaller suppliers. New mandatory interest on late payments will also be introduced, with a requirement for all commercial contracts to include statutory interest set at eight per cent above the Bank of England base rate.

For example, if a small business is owed £10,000 by one of its customers and is paid 60 days later than the agreed payment date, they will be owed £10,293.15 including mandatory interest (£10,000 plus £193.15 interest plus £100 compensation).

The government also proposes a ban on withholding of retention payments under the terms of construction contracts, consulting on its implementation. This will prevent small firms from losing retentions to insolvency or non-payment.

Business secretary Peter Kyle said: “Far too many businesses are forced to shut down because they have not been paid – that is simply unacceptable.

“We are unveiling the strongest, most robust changes to payment laws in over a generation – laws that will transform the fortunes of small businesses for years to come and make their day to day lives much easier.”