The collapse of Carillion a year ago brutally exposed the shocking ways that some big businesses treat their suppliers.

The construction giant used its dominant position to squeeze smaller firms with late payments and unreasonable payment terms in an attempt to shore up its own precarious position. These practices did not save them. What’s more, they damaged many small businesses, as they were paid nothing for the work they had undertaken beforehand and received no compensation afterwards either.

Recent Government reforms to crackdown on public sector suppliers that don’t pay on time are welcome. It sends a clear message that paying late is not okay. However, more must be done to ensure private, as well as public sector, supply chains pay on time.

That’s why the Federation of Small Businesses is urging the Government to implement a three point plan which calls for the following reforms:

l the Prompt Payment Code, should be strengthened and include tougher penalties for those companies that break the rules;

l all major public sector contracts should adopt Project Bank Accounts, with proper parliamentary accountability to ensure their proper use; and

l the boards of big companies should include non-executive directors responsible for payment practices and supplier relationships.

Why these specific measures?

Firstly, the Prompt Payment Code. Carillion was a signatory at the time of its collapse, so the code clearly needs overhauling. The Small Business Commissioner must use his 'name and shame' powers to expose firms who flout the rules.

Secondly, Project Bank Accounts. These would enable prompt payment when work is completed and prevent big companies from hoarding money to improve their own balance sheets.

Thirdly, appointing non-executive directors to look after a firm’s supply chain. The Government has taken a lead, appointing a Non-Executive Director in each Government Department who is responsible for payment practice. This should be expanded to larger companies.

These reforms would go a long way to tackling late payment and avoiding another Carillion-style collapse.