NB ASSOCIATES

Delayed Payment to MSME – How to Deal with This?

• mail@nbassociates.net
• +91 9811899279

---

Delayed Payment to MSME – How to Deal with This?

Micro, Small, and Medium Enterprises (MSMEs) play a crucial role in economic development by generating employment and contributing to industrial growth. However, one of the biggest challenges MSMEs face is delayed payment from buyers. This issue affects their cash flow, disrupts operations, and hampers business expansion. Fortunately, various legal and strategic measures are available to deal with delayed payments effectively.

Understanding the Impact of Delayed Payment to MSME

The financial stability of MSMEs is severely affected by delayed payments. When buyers do not clear dues on time, working capital shortages are created, making it difficult for businesses to pay suppliers, employees, and creditors.

Several consequences arise from delayed payments:

• Restricted Cash Flow: MSMEs rely on timely payments for their daily operations.
• Increased Debt Burden: Many businesses take loans to manage expenses due to non-receipt of payments.
• Growth Constraints: Expansion plans get stalled when funds are blocked.
• Legal Disputes: Disagreements over unpaid invoices often lead to arbitration and litigation.

Legal Provisions to Handle Delayed Payment to MSME

To protect MSMEs from delayed payments, the Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006 was introduced. Several provisions exist under this law to safeguard MSMEs and ensure they receive payments within a stipulated time.

Section 15 – Payment Obligation

As per Section 15 of the MSMED Act, buyers must make payments within 45 days of receiving goods or services from an MSME. If the agreement does not specify a payment date, then the maximum time allowed is 45 days from the date of supply.

Section 16 – Interest on Delayed Payment

If payments are not made within the specified period, compound interest at three times the bank rate set by the Reserve Bank of India (RBI) must be paid by the buyer.

Section 18 – Dispute Resolution via Facilitation Council

When disputes over delayed payments arise, MSMEs can file a complaint with the MSME Facilitation Council. The council initiates arbitration proceedings to resolve the issue efficiently.

How to Deal with Delayed Payment to MSME?

MSMEs can take several proactive steps to reduce payment delays and handle them effectively:

1. Strong Contractual Agreements

To prevent disputes, MSMEs should ensure that payment terms are clearly defined in contracts. Details such as due dates, penalties for late payments, and dispute resolution mechanisms must be included.

2. Timely Invoicing and Documentation

Invoices should be sent promptly, mentioning payment terms explicitly. Proper documentation, including purchase orders, delivery receipts, and acknowledgment slips, must be maintained.

3. Regular Follow-Ups with Buyers

Businesses should follow up regularly on outstanding invoices through emails, calls, and official reminders. Soft reminders can be sent initially, followed by more formal communication if payments are delayed further.

4. Using MSME Samadhan Portal

The MSME Samadhan portal, launched by the Government of India, enables MSMEs to file complaints against defaulters online. Once a complaint is registered, the Facilitation Council takes necessary action to recover payments.

5. Taking Legal Action

If buyers fail to make payments despite repeated reminders, legal steps can be taken. Filing a case with the MSME Facilitation Council ensures arbitration proceedings are conducted under the Arbitration and Conciliation Act, 1996.

6. Opting for Factoring Services

Factoring services allow MSMEs to sell unpaid invoices to a financial institution for immediate cash. This method helps in maintaining liquidity while reducing dependency on timely payments from buyers.

Government Initiatives to Address Delayed Payments

The government has introduced several measures to protect MSMEs:

• TReDS (Trade Receivables Discounting System): A digital platform that allows MSMEs to sell invoices to financiers, ensuring timely payments.
• Udyam Registration Benefits: MSMEs registered under Udyam enjoy preferential treatment in government tenders and better access to credit.
• Mandatory Disclosure for Large Companies: Large enterprises must disclose MSME dues in their balance sheets, promoting transparency and timely payments.

Conclusion

Delayed payment to MSME is a significant challenge, but businesses can overcome it by taking preventive legal measures, following up on payments, and leveraging government platforms like MSME Samadhan. The MSMED Act ensures strong legal protection, and MSMEs must utilize these provisions to secure their rightful dues. By adopting a proactive approach, MSMEs can safeguard their financial health and focus on growth without being burdened by overdue payments.