MSME Delayed Payments: Interest Calculator, Legal Remedies and What Businesses Can Actually Do

TL;DR

If you are a supplier to a large business and have not received payment within 45 days of accepting goods or services, you are entitled to interest at three times the RBI’s prevailing Marginal Cost of Lending Rate under the MSMED Act 2006. You can raise a dispute with the Micro and Small Enterprises Facilitation Council, and in some cases, the buyer company can be referred for non-payment. Here is how the calculation works, what documentation you need, and what actually happens when you pursue a delayed payment claim.

What the MSMED Act Says About Delayed Payments

The Micro, Small and Medium Enterprises Development Act 2006 (MSMED Act) was enacted specifically to protect small suppliers from payment delays by larger buyers. The core provision is straightforward: if a buyer accepts goods or services from a registered MSME supplier and does not make payment within the agreed payment period (or 45 days, whichever is later), the buyer must pay interest on the delayed amount.

The key phrase is “registered MSME” — both the supplier and the buyer need to understand the registration requirement. The seller must be registered as an MSME under the Udyam portal (udyam.gov.in) to claim protection under the Act. An unregistered small business cannot invoke the MSMED Act for delayed payment remedies, though it can pursue ordinary civil remedies through courts.

This matters in practice because many small suppliers work with large companies, government departments, or corporates and face persistent delays in receiving payment. The delays often range from 60 days to 180 days or more, and the supplier is left bearing the working capital cost. The MSMED Act gives these small suppliers a specific legal tool — one that carries statutory interest and a formal dispute resolution mechanism — that is stronger than a normal civil claim.

Who Is Covered Under the MSMED Act

The MSMED Act distinguishes between two categories of enterprises:

Micro Enterprise: Investment in plant and machinery or equipment up to ₹1 crore and annual turnover up to ₹5 crore.

Small Enterprise: Investment in plant and machinery or equipment up to ₹10 crore and annual turnover up to ₹50 crore.

For the delayed payment provisions to apply, the supplier must be registered as a Micro or Small Enterprise on the Udyam portal. The buyer can be any business — a large company, a government department, a PSU, or another MSME.

Government procurement rules also extend similar protections. Central government ministries and departments must make payments to MSME vendors within 15 days of acceptance (for services) or within 15 days of acceptance of supplies (for goods), subject to the store verification norms.

The 45-Day Payment Rule

By law, the maximum period for making payment to an MSME supplier is 45 days from the date of acceptance of goods or services. This is not a default — it is the outer limit. If the contract between the buyer and supplier specifies a shorter period, the shorter period applies.

“Date of acceptance” is defined in the Act as the date of actual delivery and acceptance of goods or the date of completion of services. The 45-day clock starts from this date, not from the date of invoice. In practice, there is often a dispute about when acceptance occurred, which is why documentation matters.

What happens if no payment period is specified in the contract?

If the buyer and supplier have not agreed on a payment period in writing before the supply, the default rule is 45 days from the date of acceptance.

Can the 45-day rule be overridden by contract terms?

Yes, but only if the terms specify a period shorter than 45 days. A contract cannot legally specify a payment period longer than 45 days and then rely on that longer period to avoid MSMED Act interest. Any clause that purports to waive the buyer’s obligation to pay within 45 days is void under Section 23 of the Act, as it defeats the protective purpose of the legislation.

Interest Rate on Delayed Payments

This is where the MSMED Act becomes significantly more powerful than a normal civil claim. The interest rate is not arbitrary — it is linked to the Reserve Bank of India’s Marginal Cost of Lending Rate (MCLR).

The formula:

Interest rate = Three times the MCLR as notified by the RBI + 4% spread (effectively capped by the Act)

In practice, the RBI publishes MCLR rates periodically. As of mid-2026, the MCLR for various tenors ranges approximately between 8.5% and 9.5% per annum. Three times MCLR would be approximately 25.5% to 28.5% per annum — but in practice, the actual rate applied is subject to the notifications issued and the specific circumstances. The exact applicable rate depends on the RBI’s current MCLR and any adjustments notified under the MSMED Act.

For reference, older notifications under the Act specified an interest rate of three times the bank rate (the bank rate was approximately 6.75% before the shift to MCLR framework). Courts and Councils have applied rates ranging from 18% to 24% per annum in various cases, depending on the applicable rate at the time of the dispute.

Example of interest calculation:

Suppose you supplied goods to a company on April 1, 2026. The goods were accepted on April 5, 2026. Payment was due by May 20, 2026 (45 days from acceptance). The buyer did not pay until August 20, 2026 — 92 days late.

• Invoice amount: ₹5,00,000
• Applicable interest rate (assumed 18% per annum): 18% ÷ 365 = 0.0493% per day
• Days delayed: 92
• Interest payable: ₹5,00,000 × 0.0493% × 92 = ₹22,676

On a ₹5 lakh receivable delayed by three months, the interest component alone is approximately ₹22,676 — a meaningful addition to what the buyer already owes.

Note: This is an indicative calculation. The actual rate applied depends on the MCLR prevailing at the time and any specific notifications under the Act. Use the EMI calculator to estimate interest for your specific amount and delay period, but note that the MSMED Act rate is a statutory rate, not a market rate — check the current MCLR and applicable notifications before computing the exact amount.

Step-by-Step: How to Raise a Delayed Payment Dispute

Step 1 — Verify Your MSME Registration

Before taking any action, confirm that your business is registered on the Udyam portal (udyam.gov.in). If you are not registered, you cannot file a claim under the MSMED Act. Register immediately if you are eligible — registration is free and takes about 10 minutes.

Step 2 — Gather Documentation

The strength of your claim depends entirely on the documentation. Collect:

• The purchase order or work order (showing agreed terms, quantities, and prices)
• The tax invoice or bill raised by you
• Goods receipt note or service completion certificate (signed by the buyer acknowledging acceptance)
• Any written communication reminding the buyer about the outstanding payment
• Bank statements showing receipt of payment (or lack thereof)
• The buyer’s acknowledgment of the goods or services, if available

If any of these documents are missing, your claim becomes harder to prove. Written communication about the delayed payment — emails, letters, WhatsApp messages — creates a record that the buyer was aware of the outstanding amount.

Step 3 — Send a Formal Payment Reminder

Before initiating a legal dispute, send a written payment reminder to the buyer’s accounts department and the authorized signatory. The reminder should:

• Reference the specific invoice number(s) and date(s)
• State the amount outstanding
• Mention the due date and the number of days past due
• Reference your MSME registration number and Udyam certificate
• Cite the MSMED Act 2006, Section 16, and the interest provision
• Request payment within 15 days of the reminder
• State your intention to escalate to the Facilitation Council if payment is not received

Send this by email and by registered post or speed post. Keep both copies.

Step 4 — Approach the Micro and Small Enterprises Facilitation Council

If the reminder does not result in payment, file an application with the Micro and Small Enterprises Facilitation Council (MSEFC) in your state. The application is filed under Section 18 of the MSMED Act.

What the Council does:

The Council is headed by a person with experience in industry or relevant expertise, appointed by the state government. It acts as an adjudicating authority for MSME disputes. The Council can:

• Summon both parties and examine records
• Facilitate settlement through conciliation
• If settlement fails, pass an award (order) binding on both parties
• The award can be executed like a decree of a civil court

Filing process:

1. File an application with the MSEFC in the state where the buyer’s registered office is located (or where the supply was made — check the applicable rules)
2. Pay the prescribed fee (nominal, typically ₹100-500)
3. The Council will first attempt conciliation — both parties are called for a meeting to try to reach a settlement
4. If conciliation succeeds, a settlement agreement is drawn up and signed
5. If conciliation fails (or the buyer does not participate), the Council proceeds to adjudication and passes an award

Timeline: The Act requires the Council to dispose of the application within 90 days of filing. In practice, timelines vary by state and the Council’s workload.

Step 5 — Execute the Award

If the Council passes an award in your favour and the buyer still does not pay, you can execute the award through a civil court as if it were a decree. You can also approach the High Court for execution if the decree amount is substantial.

When a Buyer Company Can Be Referred for Prosecution

The MSMED Act also contains a criminal provision — Section 27A — which allows the government to refer a buyer to the Registrar of Companies for initiating company law proceedings for non-payment of amounts determined by the Facilitation Council.

Specifically, if a buyer company fails to make payment of the amount awarded by the Council within 90 days of the award, the council may recommend to the Central Government that the buyer’s name be removed from the list of registered companies (or other appropriate action).

This provision has rarely been used in practice, but it creates a significant reputational and legal risk for large companies that persistently delay payments to MSMEs.

Common Mistakes to Avoid

Registering after the supply was made: MSME registration must exist at the time of supply to claim protection. You cannot register retroactively and then claim MSMED Act remedies for past supplies. If you are an unregistered small supplier, register now for future supplies.

Not documenting the acceptance date: The 45-day clock starts from the date of acceptance, not invoice. If the buyer refuses to acknowledge acceptance or disputes the acceptance date, you need evidence. Get written acceptance confirmation from the buyer’s authorized signatory at the time of delivery.

Failing to mention MSME status on invoices: While not always required, indicating your MSME registration number and Udyam certificate number on invoices helps establish your status and reminds the buyer of their obligations.

Approaching courts directly: The MSMED Act requires you to first approach the MSEFC Council before going to civil court. If you file a civil suit directly without going through the Council, the court may reject the suit on grounds of not exhausting the statutory remedy.

Accepting partial payment without a written agreement: If the buyer offers a partial payment to settle the dispute, get any agreement in writing. Specify whether the partial payment is in full and final settlement or whether interest is still owed on the balance.

Practical Advice for Small Suppliers

If you supply to large companies or government departments, build the following practices into your workflow:

Invoice immediately upon delivery. Every day of delay in invoicing pushes the payment date forward.

Track payment due dates in a simple register. Even a spreadsheet with columns for invoice number, date, amount, due date, and payment status is sufficient.

Send a gentle reminder at 30 days. Before the 45-day deadline, send a polite email reminder. This keeps the relationship intact while establishing that the buyer has been reminded.

Escalate at 46 days. If payment has not been received by the 46th day, send a formal letter citing the MSMED Act and your right to interest.

Consider whether the relationship is worth the cost. Pursuing a delayed payment through the Council takes time and effort. Sometimes the interest you earn does not justify the damage to a commercial relationship. Make a commercial judgment.

Relationship Between MSMED Act and Other Remedies

The MSMED Act does not take away your right to pursue ordinary civil remedies. If for any reason you cannot use the MSEFC route, you can file a civil suit in a court of competent jurisdiction for recovery of the outstanding amount. A civil suit does not carry the same statutory interest rate but gives you access to the full range of court remedies.

If you have a contract with an arbitration clause, you may need to pursue arbitration rather than going to the MSEFC Council or civil court. The arbitration clause in the contract would govern the dispute resolution mechanism.

FAQs

My buyer says they have a 60-day payment term in the contract. Do I still get interest from day 45?

Yes. Section 23 of the MSMED Act voids any contract term that imposes a payment period longer than 45 days for MSME suppliers. The 45-day rule applies regardless of what the contract says.

The buyer is a government department. Does the MSMED Act apply?

Yes, government departments are covered under the Act. For central government purchases, there is an additional rule under the Government Procurement Policy requiring payment within 15 days. For state government purchases, the same 45-day rule applies.

My buyer disputes that they accepted the goods. What do I do?

You need evidence of acceptance — a signed delivery challan, an email acknowledgment, a GRN (goods receipt note) signed by the buyer’s representative. If the buyer refused to acknowledge acceptance in writing, document this fact. In the MSEFC proceedings, the Council will examine the evidence and determine whether acceptance occurred and when.

Can I claim interest if I am not registered as an MSME?

No. The MSMED Act delayed payment provisions only apply to registered MSMEs. If you are not registered, you can pursue ordinary civil remedies for breach of contract, but you cannot invoke the MSMED Act protections.

How long does the MSEFC process take?

The Act specifies a 90-day timeline for disposal, but this is not always met in practice. The actual timeline depends on the specific Council, the complexity of the case, and whether the buyer participates in conciliation. Some cases resolve in 2-3 months; others take 6-12 months.

What happens if I win at the Council but the buyer still does not pay?

The Council award can be executed as a civil decree. You can file execution proceedings in the appropriate civil court to attach the buyer’s assets or bank accounts to recover the amount.

Can I claim legal costs and professional fees from the buyer?

The MSMED Act does not specifically provide for the buyer’s liability to pay the supplier’s legal costs in MSEFC proceedings. However, if the matter goes to civil court and you succeed, the court may award costs.

Is there a minimum amount for filing with the Council?

There is no minimum threshold specified in the Act. Any unpaid amount, however small, can be the subject of a Council application. However, for very small amounts, consider whether the cost of pursuing the claim is worth it.

Sources & References

• MSMED Act 2006 — Ministry of MSME
• Udyam Portal — MSME Registration
• RBI Marginal Cost of Lending Rate (MCLR)
• [MSEFC — State Council Directory](https://msme.gov.in/ msefc-councils)
• Government Procurement Policy for MSME Payments