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What is MSME 45 days payment rule

Posted by- admin | Date: March 30, 2023

What is MSME 45 days payment rule

MSME Law Notes by NB Associates

In India, the MSME Act has introduced a 45-days payment rule for Micro & Small Enterprises.

So, if you are a Micro or Small enterprise, and you have sold goods or provided services to a Buyer, the Buyer must make payments for the goods or services within a maximum period of 45 (Forty-Five) days from the date of the delivery of the goods or services.

This MSME 45 days payment rule aims to improve the cash flow and liquidity of MSMEs, which often face challenges in managing their working capital due to delayed payments from buyers.

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MSME 45 days payment rule in a nutshell

Provisions for the MSME 45 days payment rule lie in sections 15, 16 and 2(b) of the MSME Act.

The crux of the provisions is as under:

1. Where any supplier supplies goods or services to any buyer, the buyer must make payment on or before the date agreed between the buyer and supplier in writing.

Provided however that such an agreed period should not exceed 45 days.

2. 45 days counting to begin from the date of the delivery of the goods or services, as per section 2(b) of the MSME Act.

3. Where supplier and buyer have no agreement for the period within which payments are to be made, payments are to be made before the ‘appointed day’ i.e. within a period of 15 days from the date of the delivery of the goods or services. [Section 2(b) defines appointed day]

MSME 45 days payment rule – Explained situations

1. Where Supplier and Buyer have no agreement for the period during which payments are to be made:

The payments have to be made within a period of 15 days from the date of the delivery of the goods or services.

So, if Delivery was made on 01.01.2023, payment is to be made by 15.01.2023

2. Where Supplier and Buyer have an agreement for the period during which payments are to be made and such agreed period is more than 45 days.

The payments are to be made within a period of 45 days from the date of the delivery of the goods or services.

So, if Delivery was made on 01.01.2023, payment is to be made by 15.02.2023

3. Where Supplier and Buyer have an agreement for the period during which payments are to be made and such agreed period is more than 15 days and less than 45 days.

The payments are to be made within the agreed period from the date of the delivery of the goods or services.

So, if Delivery was made on 01.01.2023, and the agreed period of payment is 30 days then payment is to be made by 30.01.2023

MSME 45 days payment rule – What if payment is not made?

As per provisions of section 16 of the MSME Act, If payment is not made during the given period, the Supplier is entitled to interest at the rate which is 3 times the bank rate notified by RBI.

This interest is compounding interest, which compounds at monthly intervals.

Section 16 reads as under:

16. Date from which and rate at which interest is payable.—Where any buyer fails to make
payment of the amount to the supplier, as required under section 15, the buyer shall, notwithstanding
anything contained in any agreement between the buyer and the supplier or in any law for the time being in force, be liable to pay compound interest with monthly rests to the supplier on that amount from the appointed day or, as the case may be, from the date immediately following the date agreed upon, at three times of the bank rate notified by the Reserve Bank.

Conclusion

The provisions of the MSME Act mandate that any buyer who purchases goods or services from an MSME must make the payment maximum within 45 (Forty-Five) days.

If the buyer fails to make the payment within 45 days, the buyer will be required to pay interest at a rate equal to three times the bank rate notified by the Reserve Bank of India.

The rule also helps to reduce the financial stress on MSMEs and promotes timely payments, which can help them to grow and expand their business.

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