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MSME Vendor payment terms – under MSME Act

MSME Vendor payment terms

MSME Law notes by NB Associates

Under the Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006 in India, there are provisions related to vendor payment terms.

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While the act primarily focuses on the promotion and development of MSMEs, it does not explicitly outline specific vendor payment terms. However, it does address timely payment and interest on delayed payment. Here are the key points to consider:

Timely payment: The act emphasizes timely payment to MSME vendors. Buyers are required to make payment to MSME suppliers within 45 days from the date of acceptance of goods or services, or as per the agreed-upon terms. This timeframe ensures that MSMEs receive payment promptly, reducing their financial strain.

Interest on delayed payment: If the buyer fails to make payment within the stipulated timeframe, they become liable to pay compound interest with monthly rests to the MSME supplier. The interest rate is three times the bank rate notified by the Reserve Bank of India (RBI) or the rate specified in the agreement, whichever is higher.

Written agreement: It is advisable for both buyers and MSME vendors to have a written agreement or contract that clearly specifies the payment terms and conditions. This agreement should include details such as the payment due date, interest on delayed payment, and any other relevant terms agreed upon by both parties.

Complaint filing: If a buyer does not make payment within the specified timeframe, the MSME vendor can file a complaint under the MSMED Act. The complaint can be lodged with the Micro and Small Enterprise Facilitation Council (MSEFC), which is established under the act.

Dispute resolution: The MSEFC is responsible for resolving disputes related to delayed payments between buyers and MSME vendors. The council will examine the matter and pass appropriate orders, which may include directing the buyer to make payment along with interest.

It is important to note that while the MSMED Act addresses timely payment and interest on delayed payment, specific vendor payment terms such as payment due dates and invoice terms are generally agreed upon through negotiation and contractual arrangements between buyers and MSME vendors. These terms can vary depending on the nature of the business relationship and other factors.

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