Payment terms for MSME under MSME Act
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Payment terms for MSME – MSME Payment terms
MSME Law Notes by NB Associates
Micro & Small (MSEs) are the backbones of the Indian economy. Their growth and success are essential for economic development.
However, one of the biggest challenges that MSEs face is managing their cash flow. Cash flow management is vital for the survival and success of any business, but it is even more critical for MSEs, which often have limited resources and access to financing.
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The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 was introduced by the Government of India to provide support and promote the growth of Micro, Small and Medium Enterprises (MSMEs). One of the key provisions of the Act is to ensure timely payment of dues to MSMEs.
The Act has mandated certain payment terms for MSMEs, which are as follows:
1. The buyer is required to make payment to the supplier maximum of 45 days from the date of acceptance or the deemed acceptance of goods or services.
2. In case of a delay in payment, the buyer is required to pay interest to the supplier at the rate which is 3 times of prevailing rate of the Reserve Bank of India (RBI) for the period of delay.
The interest is compounding interest at monthly rest.
These payment terms are applicable to all buyers, whether they are government agencies, public sector undertakings, or private companies.
Payment terms for MSME – When there is no agreed period of payment
When the parties i.e. the supplier and the buyer have not agreed on the period under which the payment is to be made by the buyer to the supplier, the payment has to be made within a period of 15 days of the delivery of the goods or services.
Payment terms for MSME – When agreed period of payment is within 45 days
When the parties i.e. the supplier and the buyer have agreed on the period under which the payment is to be made by the buyer to the supplier, and that agreed period is within 45 days from the date of the delivery of the goods, then the payment has to be made within the agreed period of days of the delivery of the goods or services.
Payment terms of MSME – When agreed period of payment is more than 45 days
When the parties i.e. the supplier and the buyer have agreed on the period under which the payment is to be made by the buyer to the supplier, and that agreed period is more than 45 days from the date of the delivery of the goods, then the payment has to be made within 45 days of the delivery of the goods or services.
Payment terms for MSME – Role of facilitation council
The Act also mandates the creation of a facilitation council at the district level to assist MSMEs in the settlement of disputes related to payment. This council is responsible for the following:
- Conducting conciliation proceedings between the supplier and the buyer.
- Recommending measures to the respective governments for the promotion and development of MSMEs.
- Disseminating information about the Act and its provisions to MSMEs and other stakeholders.
Payment terms for MSME – Significance
The MSME Act, of 2006 has provided a significant boost to the growth of MSMEs in India.
The mandatory payment terms have ensured that MSEs are paid on time, which has improved their cash flow and reduced their dependence on external financing.
The creation of facilitation councils has also provided MSEs with a platform to settle disputes related to payment in a timely and efficient manner.
In conclusion, the payment terms for MSMEs under the MSME Act, 2006 have played a crucial role in supporting the growth of MSMEs in India. It has ensured timely payment of dues, improved cash flow, and reduced the risk of non-payment. MSMEs should take advantage of the provisions of the Act and ensure that their buyers comply with the payment terms mandated by the Act.
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Frequently Asked Questions
- What is MSME?
- How MSME claim is filed?
- What is MSME Samadhan?
- Who are eligible for MSME Samadhan?
- Where can an MSME claim be filed? Jurisdictions
- How effective is MSME Samadhan?
- What are the benefits of MSME Samadhan?
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Related laws
- Micro, Small and Medium Enterprises Development Act, 2006
- Micro, Small and Medium Enterprises Development (Furnishing of Information) Rules, 2016
- MSME Fund Rules, 2016
- Micro, Small and Medium Enterprises (Amendment) Rules, 2022
- Rules of furnishing information on Plant & Machinery/Equipment
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