The government will appoint a small business commissioner in a bid to change the culture of late payments and unfair practices.
The new role is part of a government strategy to provide support for SMEs in disputes with larger companies.
According to small business minister Anna Soubry, small businesses are owed £26bn in late payments and spend huge proportions of their turnover chasing payment.
The news comes at a time when many construction SMEs are financial hardship.
A report from recovery specialist Begbies Traynor, published today, found that more than 23,000 firms had experienced “significant” financial distress in the past 12 months, with 95 per cent of those firms identified as SMEs.
Ms Soubry said: “The Government is backing small businesses to grow and create more jobs and opportunity.
“Small businesses are owed £26 billion in late payments and spend millions more chasing down money they have already earned through hard work.
“This is simply unacceptable – it limits their growth and productivity, and can put an otherwise successful business at risk.
“The small business commissioner will tackle the imbalance of bargaining power between small suppliers and large customers, and encourage them to get round the table and sort out disputes at a fraction of the cost of going to court.
“It will also provide advice, investigate complaints and see where further action is needed to clamp down on unfair practices.”
As well as the appointment of a commissioner, proposed government legislation will require larger companies to report on their payment policies and practices, with those displaying poor behavior “named and shamed”.