MSME Delayed Payment – 45 days payment rule explained
Explanation:
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.
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.
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]
FAQ’s
Q1: 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
Q2: 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
Q3: 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, the payment would be due by February 15, 2023 and is to be made by 15.02.2023
What happens if the payment is not completed?
As per provisions of section 16 of the MSME Act,2006, If payment is not made during the given period, the Supplier is entitled to interest at the rate which is three times the bank rate notified by RBI.
The interest is compounding interest, which compounds at monthly intervals.
Why this rule?
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.
The rule serves the dual purpose of alleviating financial strain on Micro, Small, and Medium Enterprises (MSMEs) while fostering a culture of punctual payments. By ensuring that buyers make payments within the agreed-upon timeframe, the regulation provides a crucial financial stability net for MSMEs. Timely payments are instrumental in empowering these smaller enterprises to not only sustain their operations but also to pursue growth and expansion initiatives.
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