MSME Payment Terms

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MSME Payment Terms

The Government has placed enormous importance for the protection and development of Micro, Small and Medium Enterprises in the MSMED Act. And, did you know, micro, small and medium enterprises (MSME) enjoy protection from delayed payments under the MSMED Act? Read through this article to know more about delayed payments to MSME businesses.

Delayed Payments to Micro, Small and Medium Enterprises

If any micro or small enterprise that has MSME registration supplies any goods or services, then the buyer requires to make the payment on or before the date of the agreed upon between the buyer and the micro or small enterprise. In case there is no payment date on the agreement, then the buyer is required to make payment within fifteen days of acceptance of good or services. Further, in any case, a payment due to a micro or small enterprise cannot exceed forty-five days from the day of acceptance or the day of deemed acceptance.

Penal Interest on Delayed Payment to MSME Enterprise

In case of failure by the buyer to make the payment on time, the buyer requires to pay compound interest with monthly interest rests to the supplier on that amount from the date of payment or fifteen days of acceptance of goods or service. The penal interest chargeable for delayed payment to an MSME enterprise is three times of the bank rate notified by the Reserve Bank of India.

The penal interest paid by the buyer or payable by the buyer is not allowed as a deduction under the Income Tax Act, making the burden, even higher.

Requirement to Disclose in the Annual Statement

In case a buyer requires to get the audition of annual accounts, then it is the responsibility of the buyer to disclose the following facts in the annual statement.

  • The principal amount and interest due thereon remaining unpaid to any micro or small supplier at the end of the accounting year;
  • The amount of interest paid by the buyer and the value of delayed payments made by the buyer;
  • The amount of delayed payment interest due and payable;

Post by IndiaFilings is committed to helping entrepreneurs and small business owners start, manage and grow their business with peace of mind at an affordable price. Our aim is to educate the entrepreneur on the legal and regulatory requirements and be a partner throughout the entire business life cycle, offering support to the company at every stage to make sure they are compliant and continually growing.