MSME & Government Schemes · Part 6 · MSME · 13 min read · October 2026

Your buyer is past 45 days. The interest on that bill is already 17.25% a year.

A micro or small supplier has carried this right since 2006: a buyer who pays later than the law allows owes compound interest at three times RBI's Bank Rate, and loses an income-tax deduction until the bill is cleared. What changed in 2026 is the machinery around it. Parliament amended the MSMED Act in August, part of the amendment started on 15 October, and the parts that matter most for collecting money are still waiting for a date. This page sorts the two apart, works out what a late invoice is worth, and shows the cost a delay passes on to your own cash credit account.

Who the rule protects, and who it leaves out

The payment chapter of the Micro, Small and Medium Enterprises Development Act, 2006 protects a supplier that is a micro or small enterprise. Despite the Act's name, a medium enterprise gets nothing from it. The buyer can be anyone who purchases goods or takes services for payment: a listed company, a partnership firm, a government department, a hospital trust.

Three groups of suppliers find out too late that they are outside it:

• Suppliers without Udyam Registration on the date of the contract. Courts, the Supreme Court included, have refused claims where the supplier registered only after the order was placed. Registering after a dispute starts does not reach back to cover it.
• Retail and wholesale traders. Traders can register on Udyam, but the Ministry of MSME has said that registration is for priority-sector lending only. It does not carry the delayed-payment protection.
• Units that have grown into the medium band. Classification is updated from your income-tax return and GST data. A unit that crosses the small-enterprise limit on investment or turnover moves to medium, and the protection falls away for supplies after that.

The MSME Category Checker places a unit on the current limits, and the Udyam Registration guide walks through the free registration if you have not done it yet.

How the 45 days are counted

The clock does not start on the invoice date. It starts on the day of acceptance: the day the buyer accepts the goods or the service. If the buyer raises no written objection within 15 days of delivery, the law treats the supply as accepted on the day it was delivered. That is deemed acceptance, and it is why a signed delivery challan, an e-way bill and a goods receipt note matter more than the invoice itself.

From there, Section 15 sets the deadline:

• With a written agreement on payment terms, the buyer pays on the agreed date, and that date cannot be more than 45 days from acceptance. A purchase order that says "payment in 90 days" does not stretch the legal limit; the 45 days still apply.
• With nothing in writing, payment is due within 15 days of acceptance. The day after that is the "appointed day" in the Act, and interest runs from it.
• If the buyer objects in writing within 15 days, say over quality or short supply, acceptance is counted from the day you remove the objection, not from delivery.

Large buyers routinely print 60-, 90- or 120-day terms on their purchase orders. Signing such an order does not waive your right. Section 16 applies "notwithstanding anything contained in any agreement", so the interest is owed whatever the order says.

What 17.25% looks like on a real invoice

Section 16 sets the rate at three times the Bank Rate notified by RBI, compounded with monthly rests. RBI keeps the Bank Rate level with its Marginal Standing Facility rate, which moved to 5.75% when the repo rate went to 5.50% on 7 October 2026. Three times that is 17.25% a year, compounded every month. For comparison, most working-capital loans to small units are priced well below that, which is the point: the law makes slow payment more expensive than borrowing.

Change the figures for your own bill. The estimate counts whole months with monthly compounding, then simple interest for the odd days, so it runs a few rupees above the month-by-month example. A Facilitation Council works out the final figure from the exact dates.

Two more rules make that interest harder for a buyer to shrug off. Section 23 of the same Act bars the buyer from claiming it as a business expense for income tax. And Section 22 requires any buyer whose accounts are audited to disclose, in its annual accounts, the principal and interest it still owes to micro and small suppliers.

Why your buyer's accountant reads this rule more closely than your reminder

The strongest pressure on a slow payer comes from its own tax return. Section 37(2)(g) of the Income-tax Act, 2025, which replaced section 43B(h) of the old Act from 1 April 2026, allows the buyer to deduct an amount owed to a micro or small enterprise only when it is paid, if it has gone past the Section 15 deadline. The usual relief, paying before the return due date, does not apply to this clause; section 37(3) leaves it out by name.

The rule cuts the other way for an invoice that is still inside its window. A bill accepted on 20 March under a 45-day term and paid on 25 April is not overdue at year-end, so the buyer keeps its deduction. That is why buyers now ask suppliers at the start whether they are micro or small: the answer decides how carefully their accounts team tracks your bill. Put your Udyam number and category on quotations, order acknowledgements and invoices so the question is settled before the first supply.

Companies face one more filing. Under an order of the Ministry of Corporate Affairs, a company that owes a micro or small supplier for more than 45 days files Form MSME-1 every half-year, listing the dues and the reason for the delay. The penalties for keeping unpaid dues out of the accounts have also changed: from 15 October 2026, a buyer gets a warning for the first lapse, a penalty of ₹10,000 to ₹50,000 for the second, and a fine of ₹50,000 to ₹1,00,000 from the third onwards.

What a 120-day delay does to your own loan account

This is the part suppliers rarely connect until their bank calls. A cash credit or overdraft limit is not a fixed sum you can always draw. What you may draw at any moment, the drawing power, is worked out from the stock and book-debt statement you submit, minus the margin the bank keeps. Most banks count receivables only up to a set age, commonly 90 days, under their own credit policy. Older debtors drop out of the calculation.

So when a large buyer sits on ₹4,00,000 for four months, that sum stops supporting your limit just when you need it most. Your drawing power falls, the account balance may now sit above it, and under RBI's classification rules a cash credit account that stays above its drawing power for more than 30 days is flagged as SMA-1, for more than 60 days SMA-2, and beyond 90 days it becomes a non-performing asset. Those flags are reported to the credit bureaus and appear on the business's commercial credit report.

A few habits protect the account:

• Submit the stock and book-debt statement on time, with debtors listed by age, so the branch sees the delay as a buyer problem and not a business problem.
• Tell the branch early when a large buyer slips. A temporary limit, or a short extension to regularise, is easier to arrange before the account turns SMA than after.
• Keep the paper trail for every overdue bill. The same delivery proof and correspondence that supports a Council claim also explains the delay to your lender.

If you are planning a term loan alongside the working capital, the DSCR Calculator shows how much repayment your cash flow can carry, and the Commercial CIBIL Analyser reads the business credit report a lender will pull.

TReDS: getting paid before your buyer pays

The Trade Receivables Discounting System is an RBI-authorised online exchange where a micro or small supplier sells an accepted invoice to a bank or finance company. The buyer confirms the invoice on the platform, financiers bid a discount rate, and you receive the money within days. On the due date the buyer pays the financier, not you. The finance is without recourse to the supplier, so if the buyer defaults, the financier chases the buyer.

The catch is that your buyer has to be on the platform and has to accept the invoice there. Since November 2024, companies with a turnover above ₹250 crore have been required to register on TReDS, and from 15 October 2026 the new Section 15A obliges every central public sector enterprise to settle its MSE invoices through TReDS. States can extend the same duty to their own undertakings. The discount is usually borne by the supplier unless the buyer agrees to absorb it, so compare the rate with the drawing-power cost above before you decide. Invoices worth ₹3.47 lakh crore were discounted on the platforms in 2025-26, against about ₹40,000 crore three years earlier, according to the Ministry.

Filing a claim: the ODR portal and the Facilitation Council

MSME Samadhaan, the portal most guides still describe, stopped taking new delayed-payment cases from 15 October 2025. New claims go on the Ministry of MSME's Online Dispute Resolution portal, odr.msme.gov.in, which went live in June 2025. The claim lands with the Micro and Small Enterprises Facilitation Council of the state where the supplier is registered, whatever the buyer's location.

Keep these ready before you file:

• Udyam Registration certificate, showing a date earlier than the order
• Purchase order or contract, and any written payment terms
• Invoices, with delivery challans, e-way bills, goods receipt notes or service completion records
• The buyer's ledger in your books, showing what has been paid and what is outstanding
• Emails or letters asking for payment, and any objections the buyer raised
• Your interest calculation, invoice by invoice

Under the procedure in force today, the Council first tries to bring the two sides to a settlement. If that fails, it arbitrates or sends the case to an arbitration centre, and the Act asks for a decision within 90 days of the reference. In practice that deadline is missed often: Ministry figures cited in legal commentary on the amendment show roughly half of the 1,48,697 references filed between April 2022 and February 2026 still pending. File early, and do not let old invoices sit for years, because limitation rules apply at the arbitration stage.

Once the Council issues an award, a buyer who wants to challenge it in court must first deposit 75% of the awarded amount. That deposit rule has been in the Act from the start, and it is the reason many buyers settle once an award is close.

What the 2026 amendment changes once its remaining parts start

The Micro, Small and Medium Enterprises Development (Amendment) Act, 2026 received assent on 13 August 2026. The Ministry's notification of 12 October 2026 brought most of it into force on 15 October and the council composition section on 15 December. Three sections were left out, and they are the ones that change how a supplier collects:

• Clocks for each stage. Mediation to finish within 90 days of the first appearance, the case to move to arbitration within 30 days if mediation fails, and the award within 90 days of the pleadings closing. The Centre can also set up online mediation and arbitration.
• Recovery through the district administration. A settlement or award can be recovered from the buyer as arrears of land revenue, through the Collector where the buyer's assets are, and the amount is recognised as a debt under the Insolvency and Bankruptcy Code. That recognition does not by itself start insolvency proceedings.
• Money while the buyer appeals. The 75% deposit stays. The court can pay part of it to the supplier while the challenge is heard, and must release at least half the award if the challenge has been pending for more than six months.

None of these three is operational yet. Messages saying the Collector will now recover your dues, or that buyers must pay half the award up front, describe the Act as passed, not as it applies today. Watch for a further commencement notification from the Ministry before relying on them.

Before the next invoice goes out

• Register on Udyam before you take the order, and keep the certificate with the contract.
• Agree payment terms in writing, at 45 days or less, and write them on the order acknowledgement.
• Print your Udyam number and "micro" or "small" on every quotation and invoice.
• Get delivery acknowledged in writing; reply in writing to any objection within the 15 days.
• On day 46, send a payment reminder that states the due date, the outstanding amount and the interest running under Section 16.
• Ask large buyers whether they are on TReDS, and register there yourself; it costs nothing to be on the platform until you discount an invoice.
• Keep your bank's book-debt statement accurate and aged, and raise a delay with the branch before the account crosses its drawing power.

Where this leaves a small supplier

The rights that make a buyer pay already work today: 17.25% compound interest, a lost tax deduction on the buyer's side, a council in your own state, and a 75% deposit before any appeal. The 2026 amendment will make collection faster once its last three sections start, but a supplier who registers early, writes the terms down and files on the ODR portal does not need to wait for it.

Written at the MoneyClarityTech desk — by a working retail-credit professional in Indian banking who reads loan files, credit reports and bank statements every working day. Patterns from hundreds of real cases; every identifying detail removed. More about MoneyClarityTech →