A scheme to help prevent smaller companies suffering potentially crippling cash-flow problems is being launched by Surrey County Council.

Under the initiative backed by the Federation of Small Businesses (FSB), big firms securing new council contracts will have to pay suppliers within 30 days of being billed, matching the payment terms they enjoy.

Checks will be done as part of regular reviews and late payment could lead to their contracts being terminated.

At present, some of the county council’s major contractors can take much longer to settle invoices received from small and medium-sized companies (SMEs) and other organisations.

There are around 60,000 SMEs – firms with less than 250 staff – in Surrey. Between 2011 and 2012, they helped the county's economy grow by 8% – outstripping the rest of the UK.

FSB Surrey policy chairman Stuart Shorttle welcomed the council's initiative, saying: “This announcement is a really positive step in the right direction to meet the aims of our members and other local SMEs wishing to actively pursue contracts with Surrey County Council.”

Mr Shorttle said: “We welcome this opportunity to engage with the county council in order to ensure that our members may work toward a more secure financial future for their business.”

Surrey County Council’s cabinet member for business services, Denise Le Gal, said: “Businesses are the lifeblood of every community and we must make sure we create the conditions they need to thrive.”

Coun Le Gal said: “Long waits and late payments can place a huge strain on smaller businesses as the flow of cash dries up, and potentially can leave them struggling to pay their own bills.

“That’s why, as part of the council’s efforts to support economic growth, we’re introducing this scheme to ensure big businesses working for us pay their sub-contractors as quickly as we pay them.”

A county council spokesman said existing contracts with the council are not covered by the scheme.