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Announcement of the MSME 45-day payment rule to be applicable from 1st April 2024

The payment cycle for MSME sector in India is in talks to be revised.

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The Ministry of Finance, has announced to cut the timeline for payments to MSMEs (micro and small enterprises) to 45 days. This would be in effect from 1 April 2024.

This means that any company doing business with MSME traders will have to complete payments to MSMEs within a 45-day timeframe. If not, the payment amount due will be considered as profits for the company and taxed accordingly. That is, the company will not be able to claim expense deductions and tax benefits on it.

While this new tax regulation will be in favour of MSMEs, it has been met with some concerns and feedback from the industry. This has led to the Ministry reconsidering pushing the date of implementation to April 2025, to give all businesses time to prepare for change.

It must be noted that, as per the MSMED Act, 2006 the timeline for delayed payments is already set at 45 days. With the implementation of the new rule (The Finance Act, 2023 introduced Section 43(B)H in the Income Tax Act) the consequence of not compliance, i.e., inability to get tax deductions, has been emphasised upon.

Also read: MSME meaning – Understanding what is an MSME, features, role and importance

Source: CNBC TV 18 (update on 2nd May 2024)
The rule mandates that payments to micro, small and medium enterprises (MSMEs) must be made within 45 days. Thousands of MSMEs have cancelled their registrations in protest. They claim that the new rule has caused bigger businesses to stop ordering from them. As a result, business has shifted to unregistered businesses that are not subject to the new rule. Other trade organizations are planning to take legal action.

Initial industry concerns on the new delayed payment rule

It is understandable that there are concerns from industry representatives regarding the new payment terms for MSMEs 2024. General concerns include:

  • Since many buyers are small companies they too would have to adapt to the new rules within a short timeline. Moreover, considering their own limited budget, the new rule might deter them from doing business with MSMEs in the initial phase, due to its short credit and payment window.
  • There’s more clarity required on the processes and other guidelines to the updated delayed payments rule. This is because most buyers and sellers mutually agree upon feasible MSME payment terms (e.g., 30/45/60/90 days). There are also sector-wise acceptable payment practices.
  • As pointed out by representatives, in certain sectors (e.g., textile industry), the accepted practice of fulfilling payments is 90 days. This is considering the nature of businesses and the timeline of the actual goods to add value to the entire ecosystem. (Source: The Hindu BusinessLine, 7 Mar 2024)
  • In some cases, especially in the initial days when most businesses adapt to the new MSME payment terms, some MSME businesses might be impacted, i.e., loss of customers and business.

Also read: MSME classification – Understand the difference between micro, small and medium enterprises

MSME Payment Rule 2024

What the new payment rule means for MSMEs

The government has always acknowledged and encouraged the growth of the MSME sector. Over the years, it has introduced several new initiatives and schemes to empower and promote the MSME community. The revised MSME payment terms for suppliers and vendors, has been initiated to facilitate prompt payments to MSE primarily, and to curb the challenge of delayed payments.

  • The 45-day payment rule will ensure timely payments to MSEs and remove concerns on cash flow and access to finance.
  • This will also mean that MSMEs will have to review existing contracts with buyers and take required steps to stay compliant with the new rule.

Also read: Interim Budget 2024 – Tax reforms and compliance for MSMEs

Impact on buyer

There has been concerns raised over how the consequences of delayed payments will impact buyers, especially those that are small enterprises. Concerns have also been raised on the practicality and feasibility of the new rule in such a short period of time.

  • To get expense deduction benefits, companies will now have to pay their MSE suppliers first within 45 days of receiving the goods. In case of deferred payments, no benefits can be claimed the amount will be considered under ‘profits’.
  • Buyers will have to identify ways for arranging funds. For example, buyers can borrow or avail credit facility to pay their suppliers, stay compliant and leverage tax benefits. (Source: CNBC TV 18, 5 Mar 2024)

Note: The support of TReDS platforms (Trade Receivables Discounting System) can be leveraged to avail bill and invoice discounting facilities.

Also read: Pradhan Mantri Business Loan Schemes – Top schemes for MSMEs in India

What to expect next

As can be understood, the government is considering all the concerns raised, especially how effectively the rule can be implemented.

Delayed payments have been a constant challenge for MSMEs that directly impacts their business operations and revenue flow. Since MSMEs are not cash-rich, delay in payments can impact their cash flow and daily operations. The new rule aims to address this key concern and bring stability in finances across the value chain.

While the government has already established the MSME Samadhaan portal to address concerns and complaints over delayed payments to MSMEs, the new rule of 2024 is the next step to secure the financial health and growth of MSMEs.

The new rule on MSME payment terms and delayed payments is being introduced for a better future for the country’s business ecosystem. The important thing to realise is that any new change will require time to adapt. There will be initial roadblocks and learnings and amendments can be made accordingly.

The MSMED Act includes MSME payment terms for suppliers and vendors. This article elaborates on the MSME payment terms laid down by the Government of India, types of payment terms, and tips to get timely payments.

What are the MSME payment terms?

Here are some key points that the MSMED Act suggests about MSME payments.

Timely payment

As pr ethe government’s MSME payment terms, mentioned in the MSMED Act, you should receive payment within 45 days from your buyer or the buyer should abide by the terms mentioned in the contract. It works vice versa too. You should make payments to tour vendors within 45 days of the delivery of goods or services. This guideline helps MSMEs to receive timely payments. It helps reduce cash flow challenges for MSMEs.


The MSMED Act advises MSMEs to draw a formal contract between buyers and suppliers. This can specify payment terms and conditions. This contract also specifies other conditions such as interest on delayed payment, delivery times, etc.

Importance of clearly documented payment terms

Although the MSMED Act outlines payment terms to relieve the distress caused by delayed payments, the government of India encourages all MSMEs to have a contract in place. Here is why it is important to have a contract along with payment terms:

  • It helps parties both parties when to expect payment.
  • The rate of interest chargeable or late fees in case of delayed payment is mentioned.
  • One can also clearly mention the accepted mode of payment
  • What are the guidelines for delayed payment of dues?

Section 15 of the MSMED Act suggests that the supplier can charge interest to the buyer on the delayed payment.

  • In the case of a contract, the rate of interest on delayed payment can already be mentioned in the agreement.
  • In case of the absence of a contract, the supplier can charge interest that is 3 times the bank rate notified by the RBI.

What are the different types of payment terms?

Although the MSMED Act suggests making a payment within 45 days from delivery, the buyer and seller can mutually agree upon different payment terms. Here are some of the popular payment terms.

To be paid in 15/30/45/60 days: Most B2B businesses offer a credit period of certain days. Depending on the mutual agreement, it can be 15, 30, 45 or 60 days. In rare cases, credit period is extended to 90 days. Such payment terms are more popular in the case of regular business.

Advance payment: A few companies prefer to receive payment before the delivery of goods or services. This kind of payment is more popular in B2C businesses. However, if the buyer is availing one-time service or goods delivery, the supplier may have the term of advance payment.

Partial payment: Another type of payment term is partial payment. In some cases, the buyer needs to make some percentage of the payment before the delivery. The rest of the payment is made after the delivery of goods and services.

Cash on delivery: When the payment is expected at the time of delivery, it is known as cash on delivery (COD). It is a common type of payment term in e-commerce businesses.

What if the payment is not made as per the payment terms?

In case the buyer is not making a timely payment. Here is what you can do.

  • Send reminders: Sending timely invoices is just not enough. You need to send reminders to the buyer about the due date.
  • Follow-up calls: Along with reminders, you need to call the finance personnel, who might be responsible for making payment to remind them that your payment is due.
  • Late payment fees: As the due date nears, you need to remind the buyer about the payment terms you mutually agreed upon and possible charges that they will have to pay.
  • Charging interest/late fees: After multiple reminders, if the buyer still does not make a timely payment, you can send a revised invoice along with the interest/late charges payable.
  • Negotiating on payment terms: There could be a possibility that the buyer is undergoing financial difficulties and is unable to make a timely payment. In such cases, depending on your business relationships, you can negotiate the payment terms and offer them an option of part payments or extend the due date by a few days. Such a gesture can help you to maintain a healthy relationship with the customer.
  • Lodging a complaint: In case all the above steps fail, you can take the help of a grievances or complaints mechanism set up by the government of India.

Can an MSME complain against delayed payment?

In case, the buyer fails to make payment within the specified time i.e., 45 days or the timeframe mentioned in the contract, the government has set up a mechanism to resolve distress.

According to the MSMED Act, distressed MSMEs can file a complaint to the Micro and Small Enterprise Facilitation Council (MSEFC) through the MSME Samadhaan official portal.

What is MSME Samadhaan?

The MSME Samadhaan portal is an initiative launched by the Ministry of MSMEs. The main purpose of the initiative is to settle problems of delayed payments and relieve distressed MSMEs.

It is a transparent platform and, once the complaint is lodged, it is visible to everyone.

Once the complaint is lodged MSRFC council works towards resolving the dispute. The council examines the matter. If the supplier’s claim is right, the buyer is ordered to make payment along with the interest.

Tips to get timely payments

As it is the responsibility of the buyer to make timely payments, the supplier needs to be proactive in sending reminders and follow-ups. Here are a few tips to receive timely payments and avoid delayed payment situations.

  • Document everything: Documentation is key. You need to document crucial aspects such as the date of delivery, due date, late fees, etc. In case you have to complain, the documentation plays a key role.
  • Draw a contract: In case you are going to form a long-term relationship, it is important to draw a contract. The contract should explicitly mention timelines of delivery of goods and credit period, payment terms, etc.

Sohini Banerjee

Sohini is a seasoned content writer with 12 years’ experience in developing marketing and business content across multiple formats. At Tata nexarc, she leverages her skills in crafting curated content on the Indian MSME sector, steel procurement, and logistics. In her personal time, she enjoys reading fiction and being up-to-date on trends in digital marketing and the Indian business ecosystem.