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What your buyer owes you for paying late
If you are a registered micro or small enterprise, a buyer who pays late owes you interest at three times the RBI bank rate, compounded monthly — whether or not your invoice ever mentioned it. Work out the figure below and download a demand letter that cites the sections.
A credit period longer than 45 days cannot be enforced against you — section 15 caps it, whatever the purchase order says.
Pre-filled with the rate as recorded in October 2026. Check the current bank rate on the RBI site and correct it if it has changed — this is not the repo rate.
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Enter the amount and the invoice date to see what you are owed.
Why this rate is so high, and why that is deliberate
Late payment is the largest single drain on Indian MSMEs — the sums owed across the sector run to several lakh crore rupees. Parliament's answer was not to appeal to goodwill but to make delay expensive: three times the bank rate, compounded monthly, is considerably more than any buyer pays for working capital. Stretching a supplier is supposed to be the most expensive way to fund a business.
What changed the picture in practice was tax. Section 43B(h) of the Income Tax Act means a buyer who pays a micro or small supplier late cannot deduct that purchase in the year they incurred it — the deduction waits until they actually pay. A finance team that shrugged at interest tends to react to a disallowed deduction, and that is the lever a demand letter pulls.
The three steps, in order
Send the letter first
Most delayed payments are resolved by a letter that shows the buyer you know the law and have done the arithmetic. It costs nothing, it keeps the relationship intact, and it creates the written record you will need if it goes further. Name the sections and show the calculation — vagueness is what gets ignored.
Then refer it to the Facilitation Council
If the letter goes unanswered, section 18 lets you refer the dispute to the Micro and Small Enterprises Facilitation Council through the MSME Samadhaan portal. Filing is free and online, conciliation comes before arbitration, and a reference is to be decided within ninety days.
MSME Samadhaan portal →Keep your Udyam registration current
The benefit of sections 15 and 16 follows your registration as a micro or small enterprise. If your Udyam registration has lapsed or was never completed, do that before raising a claim — it is the first thing a buyer's lawyer will check.
Udyam registration portal →Common questions
How much interest can an MSME charge on a delayed payment?+
Section 16 of the MSMED Act 2006 sets it at three times the bank rate notified by the Reserve Bank of India, compounded with monthly rests. At a bank rate of 5.75% that is 17.25% a year — far above what a buyer would pay for working capital, which is the point. It is not a figure you negotiate; it is the statutory rate, and it applies whether or not your invoice mentions interest.
When does a payment to an MSME become overdue?+
Section 15 gives two limits. Where the parties agreed a credit period in writing, payment is due on that date — and in no case later than forty-five days from the day the goods or services were accepted. Where nothing was agreed in writing, payment is due within fifteen days. A purchase order stating 90 or 120 days does not extend the limit; anything beyond forty-five days is unenforceable.
Do I have to have mentioned interest on my invoice to claim it?+
No. The liability arises under the statute, not under your contract. You do not need an interest clause, and a buyer cannot contract out of it. What you do need is to be registered as a micro or small enterprise — the benefit of sections 15 and 16 follows that registration.
What is section 43B(h) and why does it make buyers pay?+
Inserted by the Finance Act 2023, section 43B(h) of the Income Tax Act 1961 disallows a buyer's deduction for a purchase from a micro or small enterprise unless it is paid within the time allowed by section 15. The expense is deferred to the year payment is actually made. For the buyer this converts a late payment from a cash-flow convenience into a tax cost in the same financial year, which is why a letter mentioning it tends to get answered.
How do I actually recover the money if the buyer ignores the letter?+
Section 18 lets you refer the dispute to the Micro and Small Enterprises Facilitation Council, filed online through the Government of India's MSME Samadhaan portal. There is no fee to file. The Council first attempts conciliation and then arbitrates, and a reference must be decided within ninety days. Most suppliers never get that far, because the demand letter is what prompts payment.
Is the bank rate the same as the repo rate?+
No, and confusing them is the most common error in these calculations. The bank rate is a separate rate notified by the RBI, usually a quarter point above the repo rate. Section 16 refers to the bank rate specifically, so check the current figure on the RBI site before sending a demand.
One honest limit. This is a computation, not legal advice, and it cannot tell you whether a particular invoice was accepted on the date you entered — which is the fact buyers dispute most often. Keep your delivery challans and acceptance records; they are what turn a calculation into a claim.
The better fix is buyers who pay on time
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