Why MSMEs in India wait so long to get paid

Ask the owner of a small manufacturing unit what worries them most and the answer is often not orders. It is money already earned and not yet received.

In brief

• The Economic Survey 2025-26 estimated about ₹8.1 lakh crore (₹8.1 trillion) locked in delayed payments to MSMEs.
• Under the MSMED Act, buyers must pay registered micro and small suppliers within the agreed period, never more than 45 days from acceptance, or owe compound interest at three times the RBI bank rate.
• Suppliers rarely enforce the rule, because filing a case against a buyer can cost them the next order.
• The practical lever is the collection workflow: recording acceptance, matching payments to invoices, and following up on time.

India has built a set of rules to fix this over two decades. This note summarises what those rules say, why suppliers use them so little, and where the problem sits inside the business: in the everyday work of knowing who owes what, since when, and who is going to ask for it. That last part is what SETITUP LABS studies under finance operations.

How big is the delayed payment problem?

Large. The Economic Survey 2025-26, tabled in Parliament in January 2026, estimated that about ₹8.1 lakh crore (₹8.1 trillion) was locked in delayed payments to MSMEs, squeezing their working capital and holding back growth (Business Standard).

The number of businesses exposed is large too. More than 7.83 crore enterprises had registered on the Udyam Registration Portal and the Udyam Assist Platform by 28 February 2026, according to the Ministry of MSME (PIB).

What does the law say about paying MSMEs on time?

In brief, and not as legal or tax advice:

• The payment deadline. Section 15 of the Micro, Small and Medium Enterprises Development Act, 2006 requires a buyer to pay a micro or small supplier by the date agreed in writing, and the agreed period cannot exceed 45 days from the day the goods or services are accepted, or deemed accepted. With no written agreement, payment is due within 15 days (India Code).
• Interest on late payment. Section 16 makes a buyer who pays late liable for compound interest, with monthly rests, at three times the bank rate notified by the Reserve Bank of India, whatever the contract says.
• A tax consequence for the buyer. From assessment year 2024-25, a buyer who pays a micro or small supplier late can deduct the expense only in the year it is actually paid, under Section 43B(h) of the Income-tax Act, 1961. The Income-tax Act, 2025, in force from 1 April 2026, carries the rule forward in Section 37(2)(g) (TaxGuru).
• Who is covered. These protections apply to suppliers that are micro or small enterprises registered under Udyam. Medium enterprises are not covered by the 45-day rule.
• Where to take a claim. Delayed payment cases go to Micro and Small Enterprises Facilitation Councils, 161 of which had been set up across states and union territories by August 2025. The Ministry of MSME launched the SAMADHAAN portal in October 2017 and an Online Dispute Resolution (ODR) portal on 27 June 2025 to handle cases end to end online (PIB).
• Invoice financing. TReDS platforms let suppliers sell invoices their buyers have accepted to financiers, and get paid early. Since a Ministry of MSME notification in November 2024, companies with a turnover above ₹250 crore must register on them (M1xchange).

A bill to amend the MSMED Act was introduced in the Rajya Sabha on 28 July 2026, aiming to strengthen how delayed payment claims are pursued and enforced (SMEStreet). Check its status before relying on the details above.

Why suppliers rarely use their rights

The Economic Survey gave the reason itself:

“When an MSME files a delayed payment case against a buyer, it may strain or even damage the business relationship. Buyers may perceive the filing as an adversarial step and may stop placing new orders or discontinue the partnership altogether.”

For a small supplier, the buyer who pays late is usually also the buyer who places the next order. So the law works mostly as a backdrop, and recovery happens informally: phone calls, WhatsApp reminders, a visit at the end of the month. Whether that informal process works depends almost entirely on how organised the supplier is.

Where collection breaks inside a small business

Seen from the supplier’s side, getting paid is a workflow with several handoffs, and most of them go unrecorded.

1. Acceptance is not recorded. The 45-day clock runs from acceptance of the goods or services. Few small suppliers note when that happened, so they cannot say with confidence when a payment became late.
2. Invoice, payment and promise live in different places. The invoice is in the billing software, the money lands in a bank account or a UPI app, and the promise to pay “next week” sits in a chat. Nothing links the three.
3. Payments arrive without references. Transfers come in with a free-text narration, often without an invoice number. One payment may settle three invoices, or part of one. Matching them is manual work.
4. There are more payments to match. UPI carried 24.51 billion transactions in August 2026, worth about ₹29.8 lakh crore, which works out to roughly ₹1,217 per transaction (NPCI). More, smaller payments mean more matching.
5. Follow-up depends on the owner. The person who knows which customer to call, and how firmly, is usually the owner. When the owner is busy, collection waits.
6. Nobody sees the ageing. A simple view of dues by age, such as under 30 days, 30 to 45 days and over 45, would show where to act. Most small businesses build it by hand, if at all.

That leaves an awkward gap. Using the legal protections takes records, such as acceptance dates, payments matched to invoices and a history of reminders, that an informal collection process never creates. The businesses that most need the rules are the least equipped to use them.

What would make getting paid less manual?

The fix we are exploring is operational before it is legal. A collection workflow that works for a small supplier would:

1. Record acceptance at delivery, with a photo of the signed challan or a confirmation from the buyer, so the due date is known rather than guessed.
2. Track dues by age against the 45-day limit, and flag invoices as they approach it.
3. Match payments to invoices automatically, using amount, party and any reference, and leave only the unclear ones for a person.
4. Send reminders from the business, with the statement attached, on a schedule the owner sets, so polite and regular follow-up does not depend on memory.
5. Share one statement with the buyer, so both sides discuss the same numbers.
6. Keep the evidence ready, so that if a case ever does go to the ODR portal, the invoices, acceptance records and reminders already exist.

None of this replaces the relationship that makes a supplier reluctant to file a case. It changes what the relationship runs on: a shared, dated record instead of memory and goodwill. That is the kind of system SETITUP builds for businesses, and the kind of problem SETITUP LABS is studying to see whether it deserves a product of its own.

Frequently asked questions

What is the 45-day payment rule for MSMEs?

Under Section 15 of the MSMED Act, 2006, a buyer must pay a registered micro or small supplier by the date agreed in writing, and that date cannot be more than 45 days after the goods or services are accepted. With no written agreement, payment is due within 15 days of acceptance.

What interest can an MSME claim on a delayed payment?

Section 16 of the MSMED Act entitles the supplier to compound interest, with monthly rests, at three times the bank rate notified by the Reserve Bank of India, from the date the payment fell due. The rate applies whatever the contract between the parties says.

Where can an MSME file a delayed payment complaint?

Claims go to the Micro and Small Enterprises Facilitation Council of the relevant state. The Ministry of MSME launched an Online Dispute Resolution (ODR) portal in June 2025 to handle these cases online, and new cases have been filed there since October 2025. The earlier SAMADHAAN portal dates from 2017.

What is TReDS?

The Trade Receivables Discounting System is a set of RBI-regulated platforms where MSMEs upload invoices their buyers have accepted, and financiers bid to pay them early at a discount. Companies with a turnover above ₹250 crore are required to register on TReDS.

Does the 45-day rule apply to medium enterprises?

No. The payment protections in Sections 15 and 16 of the MSMED Act, and the related income-tax rule, cover suppliers that are micro or small enterprises registered under Udyam. Medium enterprises are not covered.

Sources

1. Business Standard, “Delayed payments continue to hit MSMEs, ₹8.1 trillion stuck: Eco Survey”, 29 January 2026.
2. Press Information Bureau, Ministry of MSME, “Over 7.83 crore enterprises registered on Udyam Registration Portal (URP); growth trend indicated”, 30 March 2026.
3. India Code, “The Micro, Small and Medium Enterprises Development Act, 2006”.
4. TaxGuru, “Section 37 of Income Tax Act 2025 (Earlier Section 43B of Income Tax Act 1961)”.
5. Press Information Bureau, Ministry of MSME, “Government Enhances MSME Support with Credit Schemes, SRI Fund, and SAMADHAAN Portal”, 7 August 2025.
6. M1xchange, “Mandatory TReDS onboarding for corporates with turnover of 250cr or more”, 4 December 2024.
7. SMEStreet, “MSME Development (Amendment) Bill 2026: Delayed Payments, MSEFCs and Key Reforms Explained”.
8. National Payments Corporation of India, “UPI Product Statistics”.