Under the MSMED Act 2006, a buyer must pay a Udyam-registered micro or small supplier by the agreed date, which cannot be more than 45 days from acceptance of goods or services, or within 15 days if nothing was agreed. Late payment attracts compound interest with monthly rests at three times the RBI bank rate, and the supplier can apply on the MSME Samadhaan portal.
Micro and small businesses often supply larger companies that pay slowly, sometimes 90 or 120 days after delivery. The Micro, Small and Medium Enterprises Development (MSMED) Act 2006 gives micro and small enterprises (MSEs) a legal right to be paid within a fixed time, with heavy interest if the buyer is late.
This guide explains the 45-day rule, how the interest works, how to use the MSME Samadhaan portal, and how to set up your invoices and terms so buyers take the rule seriously.
What does the MSME 45-day rule say?
Sections 15 to 24 of the MSMED Act deal with delayed payments to micro and small enterprises. The core points are:
| Rule | What it means |
|---|---|
| Payment by agreed date | The buyer must pay on or before the date agreed in writing |
| 45-day ceiling | The agreed period cannot exceed 45 days from acceptance or deemed acceptance |
| No written agreement | Payment is due within 15 days of acceptance or deemed acceptance |
| Interest on delay | Compound interest with monthly rests at three times the bank rate notified by the RBI |
| Remedy | Reference to the Micro and Small Enterprises Facilitation Council (MSEFC), via the Samadhaan portal |
The MSME Samadhaan portal summarises it this way: the buyer is expected to pay within 45 days of the acceptance of goods or services, and if it does not, it is liable to pay compound interest with monthly rests at three times the bank rate notified by the RBI.
What is "acceptance" and "deemed acceptance"?
The clock starts from acceptance, not from the invoice date. Acceptance is the day the buyer actually accepts the goods or services. If the buyer raises no written objection within the period allowed under the Act, the goods or services are treated as accepted, which is deemed acceptance. Keep signed delivery challans, GRNs or service completion reports, because they prove when the clock started.
Who is protected by the rule?
- Micro and small enterprises with valid Udyam registration are protected. The Samadhaan portal states that any micro or small enterprise having valid Udyam Registration can apply.
- Medium enterprises are not covered by the delayed-payment chapter.
- The buyer can be any business or organisation buying from the MSE, including companies, firms and government bodies.
Check your enterprise classification on your Udyam certificate. If your status has changed because of growth, the current classification matters for new supplies.
How is interest calculated on delayed payments?
Interest is compound with monthly rests at three times the RBI bank rate. Because the bank rate changes, always use the rate notified by the RBI for the relevant period.
Worked example: interest on a late invoice
A Coimbatore micro enterprise supplies machined parts worth ₹5,00,000 (including GST) to a manufacturer. Goods are accepted on 1 April 2026. The agreed credit is 45 days, so payment is due by 16 May 2026. The buyer pays on 16 August 2026, three months late.
For illustration only, assume the RBI bank rate is 6% a year. The MSMED rate is then 3 × 6% = 18% a year, or 1.5% a month, compounded monthly:
| Month | Opening amount | Interest at 1.5% | Closing amount |
|---|---|---|---|
| 1 | ₹5,00,000 | ₹7,500 | ₹5,07,500 |
| 2 | ₹5,07,500 | ₹7,613 | ₹5,15,113 |
| 3 | ₹5,15,113 | ₹7,727 | ₹5,22,840 |
Total interest for three months is about ₹22,840, compared with ₹22,500 at simple interest. Interest runs from the appointed day (the day after the due date). Replace the assumed 6% with the actual RBI bank rate for your period before making any claim.
How do you file a delayed-payment application on MSME Samadhaan?
- Collect documents. Udyam certificate, purchase order or contract, invoices, delivery challans or acceptance proof, and correspondence about payment.
- Prepare a statement of dues. List each unpaid invoice, the acceptance date, due date, amount, any part-payment, and interest claimed.
- Send a demand first. A written demand citing the MSMED Act often settles the matter. See the final-notice template in payment reminder templates.
- Apply on the Samadhaan portal with your Udyam details and the buyer's details.
- Track the application. It goes to the MSEFC of the relevant state.
- Attend conciliation. The council first tries to settle the dispute through conciliation.
- Arbitration if needed. If conciliation fails, the council may take up arbitration or refer it to an institution. The Act targets a decision within 90 days of the reference.
- Enforce the award. A buyer that wants to challenge an award in court must, under the Act, deposit 75% of the amount awarded.
What does the rule mean for buyers?
The rule affects your customers too, which is why stating your MSE status clearly gets results:
- Disclosure: The Act requires buyers whose accounts are audited to disclose unpaid amounts and interest owed to MSEs in their annual accounts.
- Interest not deductible: The Act says interest payable under it is not allowed as a deduction for the buyer's income-tax purposes.
- Income-tax payment rule: Under the Income-tax Act 1961, section 43B(h) restricted the buyer's deduction for amounts owed to micro and small enterprises until actual payment if paid beyond the MSMED Act time limit. From 1 April 2026 the Income-tax Act 2025 applies; buyers should check the corresponding provision with their tax adviser.
Many large companies therefore run separate, faster payment cycles for MSE vendors. Make sure you are tagged as one in their vendor master.
How should you set up invoices and terms to use the rule?
- Register on Udyam before supplying, and keep the certificate current.
- Print your Udyam number and category (micro or small) on quotations, invoices and your letterhead.
- State payment terms within 45 days, for example "Payment due within 30 days of acceptance".
- Add an interest clause, such as: "Delayed payments attract interest under section 16 of the MSMED Act 2006."
- Show the due date on each invoice.
- Collect acceptance proof for every delivery.
- Ask buyers to record your MSE status in their vendor master.
Billing Software by Betterwork can carry your Udyam number and payment terms on every GST invoice and send reminders before and after the due date. For a broader collections plan, see how to get paid faster.
How do you calculate the due date correctly?
The due date depends on two things: when acceptance happened and what was agreed in writing.
| Scenario | Acceptance date | Agreed terms | Due date |
|---|---|---|---|
| Written PO says 30 days | 2 Nov 2026 | 30 days | 2 Dec 2026 |
| Written PO says 60 days | 2 Nov 2026 | 60 days (exceeds cap) | 45-day cap: 17 Dec 2026 |
| No written agreement | 2 Nov 2026 | None | 15 days: 17 Nov 2026 |
| Buyer objects to quality within the allowed period | Date objection is resolved | 30 days | 30 days from the date the defect is removed and goods accepted |
Count carefully from the acceptance or deemed acceptance date, not the invoice date. If the buyer raised a written objection, the clock generally runs from when the objection is cleared, so record that date as well.
What should a delayed-payment demand letter include?
Before approaching the facilitation council, send a clear written demand. Include:
- Your enterprise name, Udyam registration number and category (micro or small).
- Each unpaid invoice with invoice date, acceptance date, due date and amount.
- Part-payments, credit notes and TDS deducted, so the balance is exact.
- The interest claimed, calculated at three times the RBI bank rate with monthly rests from the day after the due date.
- A reasonable date for payment, such as 15 days.
- A statement that you may apply on the MSME Samadhaan portal if the amount remains unpaid.
Keep the tone factual. The letter may later be read by the council, and a calm, well-documented demand is far more persuasive than an angry one.
Is it worth applying for small amounts?
Each case takes time and attention. For small amounts with a customer you want to keep, a firm demand citing the Act is often enough. Reserve Samadhaan applications for larger amounts, customers who have stopped responding, or repeated patterns of delay. Either way, put the rule to work early by printing your Udyam status on every invoice.
How does the due date change with different payment terms?
The Development Commissioner (MSME) FAQs on delayed payments set out when interest starts:
| Situation | Interest is payable from |
|---|---|
| No agreement on a payment date | The appointed day, which is the day after 15 days from acceptance or deemed acceptance |
| Agreed date of 45 days or less | The date agreed in writing |
| Agreed date of more than 45 days | 45 days from the date of acceptance |
This means a buyer cannot extend the protection by writing 60 or 90 days into a purchase order. Interest still starts after 45 days from acceptance, so record acceptance dates carefully on every invoice.
Common mistakes MSEs make with the 45-day rule
- Not registering on Udyam until a dispute arises.
- Accepting 90-day terms in writing and then being unsure of their rights.
- No proof of acceptance for deliveries, making the start date arguable.
- Using the wrong interest rate; it must be three times the RBI bank rate, compounded monthly.
- Filing without a clean statement of dues, which slows conciliation.
- Threatening a Samadhaan case without intending to file, which weakens later notices.
- Ignoring part-payments and credit notes in the claim; see accounts receivable management.
Key takeaways
- The MSMED Act requires buyers to pay micro and small suppliers within the agreed period, capped at 45 days from acceptance, or 15 days if nothing was agreed.
- Late payment attracts compound interest with monthly rests at three times the RBI bank rate.
- Only Udyam-registered micro and small enterprises can apply on the MSME Samadhaan portal.
- Buyers must disclose MSE dues and cannot deduct MSMED interest for income tax.
- Print your Udyam number, terms and an interest clause on every invoice, and keep acceptance proof.
For managing the cash gap while you wait, see cash flow management for small businesses.
This guide is general information, not tax advice. Rules last checked on 20 October 2026; confirm with your tax professional for your situation.