What Is the 45-Day Payment Rule for MSMEs?

What the 45-day rule actually says

It's Section 15 of the Micro, Small and Medium Enterprises Development Act, 2006 (the MSMED Act). When a supplier supplies goods or renders services, the buyer has to pay on or before the date the two of them agreed in writing. If they never agreed one, the buyer has to pay before the "appointed day". Then comes the proviso. Whatever the parties write, the agreed period can't go beyond 45 days from the day of acceptance or deemed acceptance.

Read it slowly and you'll see two limits, not one. A written payment term binds the buyer, but it can't push the due date past day 45. And where nothing was written about payment, the buyer must pay before the appointed day, which Section 2(b) defines as the day after 15 days from acceptance. So 15 days is the default. Forty-five is the outer edge of a written credit period. Plenty of suppliers and buyers have this backwards. They think 45 days is always on offer. It isn't.

The section protects a "supplier". Section 2(n) defines that as a micro or small enterprise that has filed its memorandum (today, Udyam registration), along with certain government corporations and bodies that sell goods made by micro and small units. On the other side, it binds every "buyer": anyone who buys goods or takes services from such a supplier for consideration. There's no carve-out for big companies, multinationals, PSUs or government departments. None.

The provisions behind the rule

Which day do you start counting the 45 days from?

From acceptance. Not from the invoice, and not from whenever the buyer's accounts clerk got round to entering your bill. For goods, acceptance is usually the day they were delivered at the buyer's premises, and you prove it with the signed challan, the transporter's POD or the buyer's GRN. For services, it's the day the service was rendered. A monthly facility management contract is rendered at the end of each month, while a one-off software implementation is rendered only when it's delivered and the client signs it off.

The buyer can move that date. Only one way, though. It has to object in writing within 15 days of delivery, and the objection must be a genuine one. Say the buyer's quality team emails on day 6 that 300 out of 2,000 castings failed the hardness test. That's an objection. A phone call isn't. Nor is a complaint on day 50 that surfaces for the first time after you've sent a payment reminder. That's too late to shift acceptance, though the buyer can still raise it as a defence on the merits. If the objection does come in time, acceptance becomes the day you remove it (by replacing the rejected pieces, for instance), and the clock restarts from there for those goods.

Two practical things follow from this. Keep a register of delivery dates for every invoice, because everything else hangs off those dates. And if a buyer makes a habit of complaining, reply to every complaint in writing and note the date you fixed it. Your reply is what restarts the clock in your favour.

So is it 45 days or 15?

You only get to 45 days if a credit period was agreed in writing. With no written term, the buyer must pay within 15 days of acceptance. The written agreement needn't be a formal contract, though. A purchase order with a payment clause will do. So will a signed quotation, a rate contract, a vendor registration form that mentions credit terms, or an email exchange agreeing to "30 days from delivery". What doesn't count is habit. The buyer always paying after two months, and you never complaining, isn't an agreement in writing.

A written term longer than 45 days gets read down to 45. If the purchase order says "90 days from receipt of material", then for Sections 15 and 16 the money falls due on day 45 and interest runs from day 46. Some suppliers argue that an agreement breaking the 45-day cap is no agreement at all, so the 15-day default should kick in. There's some logic to that. But in our experience the safer reading, and the one a Council is more likely to accept, is the 45-day ceiling. Build your claim on that. You give up very little.

A shorter written term binds as written. If the PO says 30 days, payment is due on day 30, and interest runs from day 31. Forty-five is a ceiling. It isn't something the buyer can claw back from a shorter term it already agreed to.

Who Section 15 of the MSMED Act covers, and who it leaves out

Only micro and small enterprises are protected. Medium enterprises sign up on the same Udyam portal, but they aren't "suppliers" under Section 2(n) and can't use Sections 15 to 18. The classification limits went up on 1 April 2025. A micro enterprise is now one with investment in plant and machinery or equipment up to Rs 2.5 crore and turnover up to Rs 10 crore. A small enterprise can have investment up to Rs 25 crore and turnover up to Rs 100 crore. Some units that were medium under the old limits dropped back into the small category under the new ones, and that put them back under Section 15. Look at the category on your current Udyam certificate. Do it today.

You also have to be in manufacturing or services. Retail and wholesale traders have been allowed onto Udyam since July 2021, but the Ministry of MSME restricted their benefits to priority sector lending, and Facilitation Councils generally won't hear their delayed-payment claims. That question gets a note of its own: can a trader use the MSME Facilitation Council. Service providers are covered on the same footing as manufacturers. Proving acceptance is a bit different for them, as we explain in our note on service provider MSMEs.

When you registered matters too. If you got onto Udyam only after the contract was signed, expect the buyer to throw the Supreme Court's 2021 decision in Silpi Industries at you. The law on that shifted in 2025. We've set out where it stands in whether Udyam registration after the contract still helps.

What happens when the buyer pays after 45 days?

Four things, and they come at the buyer from different sides. The first is interest under Section 16, starting the day after the due date. It's steep. Three times the bank rate notified by the RBI, compounded monthly, no matter what the contract says. With the bank rate at 5.75 percent from 7 October 2026, the rate is 17.25 percent a year before compounding. Our guide on calculating MSME delayed payment interest shows how to work it out invoice by invoice, including what to do when the bank rate changes partway through a long delay.

Second, you can take the dispute to the Micro and Small Enterprises Facilitation Council under Section 18. It tries conciliation first and arbitrates if that fails. The buyer can't hide behind its own arbitration clause to send the case somewhere else. And if it loses and wants to challenge the award, Section 19 makes it deposit 75 percent of the amount awarded first. For how the Council runs, see what the MSME Facilitation Council is and how it works.

Third, disclosure. Section 22 makes audited buyers show unpaid MSME dues and interest in their accounts. And companies buying from micro and small enterprises that pay beyond 45 days have to file a half-yearly return, MSME Form 1, with the Registrar of Companies. Our note on MSME Form 1 and why it matters in a payment dispute explains how a supplier can use that filing as evidence. It's often the buyer's own admission.

Fourth, tax. From the financial year 2023-24, Section 43B(h) of the Income-tax Act, 1961 lets a buyer deduct a payment due to a micro or small enterprise only in the year it's actually paid, if it's paid beyond the Section 15 time limit. The rule carries on under the Income-tax Act, 2025, in force from 1 April 2026, so check the current section number. A buyer closing its books in March with big unpaid MSME balances can face a higher tax bill for the year. That gets a CFO's attention. The detail is in how Section 43B(h) helps MSMEs get paid.

Can a back-to-back or pay-when-paid clause get round the 45 days?

No. Clauses saying the buyer will pay only once its own client pays are everywhere in construction, EPC and IT subcontracting. Between the parties, as a commercial term, such a clause may be valid. What it can't do is stretch the time for payment under Section 15. Section 16 applies "notwithstanding anything contained in any agreement", and Section 24 gives these sections overriding effect. So if the main contractor waits nine months for a government department to clear its bill, its micro or small subcontractor can still claim interest from day 46. Or from day 16, if nothing was agreed in writing.

Retention money and milestone payments are trickier. Say the contract keeps back 5 percent of each bill until the defect liability period ends. The retention part is arguably not due until then, and for that part the 45-day clock runs from the agreed release date. Councils haven't been consistent on this. Show retention amounts and their release dates separately in your claim. Outside the MSME route, retention disputes go to the commercial courts, and the commercialcourtlawyer.com guide to recovering retention money from a contractor or builder explains how that works.

Running bills in works contracts raise their own puzzle. When was the service "rendered"? The day the work was done, or the day the engineer certified the bill? Buyers usually say certification. Suppliers say the buyer can't sit on certification and so delay acceptance. Keep the submission and certification dates of every running bill, and if certification is late, put that on record in writing at the time. Not a year later.

What buyers should do to stay inside the 45-day rule

For buyers, the fix is mostly paperwork. Collect each vendor's Udyam number and category at onboarding, and flag the micro and small ones in your vendor master. Ask vendors to tell you in writing if their category changes. Rewrite your standard PO terms so micro and small vendors are paid within 45 days of acceptance, and set up the payables run to treat that as a hard deadline. Got a genuine quality problem? Put it in writing within 15 days of delivery. A complaint after that won't move the start date.

Advocate B.K. Singh's tip for companies on the buying side is to reconcile MSME vendor ledgers every quarter, not just at year-end. A quarterly check catches the invoice stuck in someone's inbox while the interest on it is still small. It also gives finance the numbers it needs for MSME Form 1 and the tax computation. Buyers who wait for a Council notice tend to find the interest has been growing for a year or more.

If a supplier has already filed against you, that's a separate exercise with its own deadlines and strategy. We've covered it in how to respond if an MSME supplier files a case against your company.

Using the 45-day rule when a buyer pays late

These steps work whether the arrears are a few lakh or much larger. Remind first, document properly, and go to the Council only when reminders don't work.

1. Check your status and your dates

   Make sure your Udyam category is micro or small. Note the registration date. For every unpaid invoice, find the delivery date, any written objection and the written credit term. Then work out each due date, using the 15-day default where nothing was written or the agreed term, capped at 45 days, where something was.

2. Put the rule on your paperwork

   Add one line to your invoices and quotations: payment is due within the agreed period, not exceeding 45 days from acceptance, failing which interest is payable under Section 16 of the MSMED Act. It doesn't create the right (that exists anyway). It just stops the buyer claiming it was caught by surprise.

3. Send a written reminder with the numbers

   Once an invoice crosses its due date, email the buyer with the invoice, the due date and the interest building up. Keep it polite. Large buyers often pay MSME invoices fast once their finance team sees the Section 43B(h) and Form 1 consequences spelt out in writing.

4. Step up to a legal notice

   If two or three reminders get nowhere, send a legal notice setting out the principal, the interest working and the Section 18 route. Give 15 days. It can help on limitation too, because a written acknowledgment from the buyer starts the limitation period afresh, provided it comes before time has run out.

5. File on MSME Samadhaan

   Still no payment? File a reference online to your state's Facilitation Council, with the documents. The Council issues notice to the buyer and starts conciliation.

6. Get ready for conciliation and arbitration

   Before conciliation, decide how much interest you'd give up for quick payment. If it fails, the Council arbitrates or refers the matter to an institution, and the award can be enforced like a decree.

The time limits at a glance

How long enforcement takes, and what it costs

Papers that prove the due date

Where to go when the rule is broken

Under Section 18(4), you go to the Micro and Small Enterprises Facilitation Council of the state or union territory where you, the supplier, are located. Where the buyer is doesn't matter. A Delhi supplier files before the Delhi council set up by the Department of Industries, Government of NCT of Delhi. A unit in Ghaziabad or Noida goes to the Uttar Pradesh government's council structure for its region, and one in Gurugram or Faridabad to the Haryana set-up. Every reference is filed online through the MSME Samadhaan portal. There's no minimum or maximum claim value.

Government departments and PSUs are buyers under Section 15 like anyone else. Getting money out of them has its own headaches, internal approvals and audit objections among them, which we discuss in whether an MSME can claim against a government department or PSU. If you're outside the Act (a medium enterprise, say, or a trader), dues of Rs 3 lakh or more go to a commercial court. First, though, comes mandatory pre-institution mediation under Section 12A of the Commercial Courts Act, 2015, unless you need urgent interim relief.

Prevention costs less than any forum. A contract that fixes the credit period, puts a time limit on objections and asks for written acceptance cuts down fights over the three things that matter: when the goods were accepted, when payment fell due, and whether interest runs. There's sample wording in our note on contract clauses that help MSMEs avoid payment disputes.

Misreadings of the 45-day rule that cost suppliers money

• "The buyer always gets 45 days." Only when you agreed a credit period in writing. With nothing written, it's 15 days.
• "My PO says 90 days, so I agreed to wait that long." The law caps any agreed period at 45 days, whatever you signed.
• "I can't charge interest without a clause." Section 16 gives you interest by law. A no-interest clause doesn't take it away.
• "The buyer complained, so nothing's due." Only a written objection within 15 days moves the acceptance date, and only for the goods it was about.
• "They paid in full, so that's the end of it." Interest for the delay is still payable after the principal is cleared, subject to limitation.
• "Medium enterprises get the same protection." They don't. Sections 15 to 18 protect micro and small suppliers only.
• "It's just an income tax rule." Section 43B(h) borrows its time limit from Section 15. Your legal right to payment and interest comes from the MSMED Act itself, tax or no tax.

What to do this week

If you're a supplier, take your three biggest buyers and pull out six months of invoices. Against each one, write the delivery date, the written credit term and the due date under the 45-day cap. Most suppliers who do this find their buyers routinely take 70 to 120 days. Then decide who gets a reminder, who gets a notice, and which relationships you'd rather handle gently. When Advocate B.K. Singh reviews a supplier's position, the first thing he does is separate invoices with clean delivery proof from the ones without. The clean ones carry the case. The doubtful ones can wait.

If you're a buyer, list your micro and small vendors. Check how many invoices went past 45 days this financial year, and clear the overdue ones before the year closes. The interest and the tax hit only grow.

Want your purchase orders, delivery papers or a buyer's demand checked against the 45-day rule? Or to hear when the rules or the bank rate change? You can reach Advocate B.K. Singh's team through our contact page.