When a Buyer Doesn't Pay: The MSME Delayed Payment Rules

Late payment is the quiet reason a lot of small Indian businesses run out of cash while their order book looks healthy. The law gives registered micro and small enterprises more leverage here than most owners use.

The 45-day rule

Under the MSMED Act, where a micro or small enterprise supplies goods or services, the buyer is required to pay by the date agreed in writing — and that agreed date cannot exceed forty-five days from acceptance or deemed acceptance of the supply. If there is no written agreement, the period is shorter. A purchase order that says “payment in 90 days” does not override this.

Interest is not optional

Where payment is delayed beyond that period, the buyer is liable to pay compound interest, at a multiple of the RBI bank rate, from the appointed day. This is a statutory liability, not something you have to have negotiated into the contract. In practice most suppliers never invoke it — but knowing it exists changes how a follow-up email reads.

The income tax angle that changed the conversation

There is now also a provision in the Income Tax Act that disallows a buyer's deduction for amounts payable to a micro or small enterprise if the payment is not made within the statutory time limit, with the deduction pushed to the year of actual payment. That has made larger buyers considerably more attentive to their MSME creditors near year-end. If your buyer is dragging, it is fair — and effective — to mention it.

Where to complain

The MSME Samadhaan portal lets a registered enterprise file a delayed payment application against a buyer. It goes to the Micro and Small Enterprise Facilitation Council in the relevant state, which can take up conciliation and then arbitration. It is not instant, and it is not free of effort — but filings are visible to the buyer, and a surprising number of cases settle once one is registered.

What you need for any of this to work

• A valid Udyam registration — the protections attach to registered micro and small enterprises
• Your Udyam number printed on your invoices, so the buyer cannot claim they did not know
• Written proof of delivery or acceptance, since the clock runs from there
• A clean record of what was agreed in writing, including the payment terms

The practical order of escalation

A reminder quoting the invoice and the statutory due date. Then a formal letter mentioning interest liability under the MSMED Act. Then a Samadhaan filing. Most disputes we see end at step two, which is exactly why step two is worth writing properly.

If a buyer is sitting on your money, we can help you get the Udyam registration in place, fix the invoice format, and draft the escalation. Rules and rates do change, so confirm the current position before you rely on the numbers in any letter.