MSME delayed payments: how to actually get paid in India
The hardest part of running a small business in India is usually not winning the order. It is getting paid for it.
The scale of this is not a feeling, it is measured. Roughly ₹8.1 lakh crore is locked up in delayed payments owed to MSMEs. Average overdue receivables have reached about ₹3.8 crore per firm, and real payment cycles run near 73 days against a legal limit of 45. That is working capital you have already earned and cannot use.
Most small suppliers treat this as bad luck. It is not. There is a specific law, with teeth, that almost nobody uses.
What the law actually gives you
Under the MSMED Act, 2006:
- Section 15 — a buyer must pay you by the agreed date, and that date can never be more than 45 days from acceptance of the goods or services. If there is no written agreement, the limit is 15 days.
- Section 16 — miss that deadline and the buyer owes you compound interest at three times the RBI bank rate, compounded monthly. At recent rates that works out to roughly 20% a year. It is automatic. You do not need it written into your contract.
- Section 23 — the buyer cannot claim that interest as a tax deduction.
Since Section 43B(h) of the Income Tax Act, a buyer who pays you late also loses the deduction on the purchase itself for that year. We have written that up separately, from the buyer's side: the 45-day rule explained. It is worth reading, because it is the single strongest piece of leverage you have — and most buyers have no idea they are carrying it.
Step 1 — Register on Udyam. Nothing above applies without it
Every protection here depends on you being Udyam-registered as a micro or small enterprise at the time you supplied. Registration is free and online. If you are not registered, you have no claim under this Act at all.
Two limits worth knowing before you rely on this:
- Medium enterprises are excluded from the 43B(h) consequence.
- Trading activity does not count. A wholesale or retail trader registered on Udyam is registered for lending purposes, not as a supplier under Section 15.
Step 2 — Decide your payment terms deliberately
This is the detail nobody tells small suppliers: a written agreement usually helps the buyer, not you. With no written term, the buyer has 15 days. Sign a term of 45 and you have handed them a month more.
That does not mean avoid paperwork. It means do not accept a long payment term casually, and never agree to one longer than 45 days — beyond that the clause is unenforceable anyway.
Step 3 — Make the invoice do the work
Put your Udyam registration number on every invoice, along with the due date and a line stating that interest accrues under Section 16 of the MSMED Act after it. This costs nothing and changes the conversation later. It also removes the buyer's most common defence, which is that they did not know you were a registered MSE.
Step 4 — Escalate in a fixed sequence
Do not improvise this. Run the same three steps every time:
- A polite reminder on the due date. No threats, just the invoice and the date.
- A formal notice at around 15 days overdue, stating the section, the deadline, and the interest computed to date as a number. A specific rupee figure lands very differently from "as per the Act."
- A Samadhaan application if that is ignored. Here is how to file one.
Most cases end at step 2. The interest calculation and the tax consequence together are usually more expensive than simply paying you.
The real fix is upstream
Recovery is the expensive way to solve this. Agreeing terms before the order is the cheap way.
Settle payment terms in writing at the quotation stage, not after delivery — our guide to writing an RFQ covers where this belongs, and the free RFQ generator includes a payment-terms field so it never gets left to the end.
A buyer who refuses to commit to a payment term in writing before an order is telling you something useful. Listen to it.
This is general information, not legal or tax advice. Confirm the specifics with your CA before acting on a claim.