Understanding the Interest on Delayed Payments Act: Get Paid—and Compensated—on Time
Small businesses often wait months for money already earned. India’s Interest on Delayed Payments to Micro and Small Enterprises (MSME) Act—commonly called the Interest on Delayed Payments Act—gives suppliers a legal right to claim steep interest when buyers miss due dates. This guide explains the law in plain English and shows how to use it to protect your cash flow.
1. What Is the Interest on Delayed Payments Act?
Originated as the 1993 Act; key provisions were absorbed into Sections 15–18 of the MSME Development Act 2006.
Applies to all buyers of goods or services from registered Micro or Small Enterprises (MSEs)—regardless of the buyer’s size.
Mandates compound interest on overdue amounts at three times the RBI’s Bank Rate.
Interest is mandatory—buyers cannot contract out or negotiate lower rates.
2. Payment Timelines You Must Know
| Scenario | Maximum Days to Pay |
| No written agreement | 15 days from acceptance |
| Written agreement specifies credit terms | 45 days maximum (even if the contract says 60 or 90) |
After these limits, the invoice is officially “delayed” and interest starts accruing.
3. How Interest Is Calculated
Rate = 3 × RBI Bank Rate (e.g., if Bank Rate is 6 %, interest = 18 % p.a.).
Compound monthly until the buyer pays in full.
Example: Invoice ₹10 lakh due on 1 Jan, paid on 1 Apr (90 days late, > 45‑day limit). Interest ≈ ₹45,000.
4. Enforcement Via MSME Facilitation Council (Samadhaan)
File an online application on samadhaan.msme.gov.in with UDYAM number.
Council issues notice within 15 days and seeks settlement.
If unresolved, case moves to arbitration; award is enforceable like a court decree.
Buyer must deposit 75 % of award before appealing.
5. GST Angle: Extra Leverage
Under GST Sec 16(2), buyers who haven’t paid value + GST within 180 days must reverse input‑tax credit and pay 18 % interest to the government. Mentioning this rule often accelerates payment.
6. Practical Steps to Invoke the Act
Register on UDYAM—without it you can’t file Samadhaan cases.
State payment terms clearly on POs and invoices (e.g., "Payable within 30 days; interest under MSMED Act applies thereafter").
Send a formal notice citing Sections 15–18 once the invoice crosses the 45‑day mark.
Keep records (invoice, delivery challan, emails) ready for upload.
File Samadhaan if unpaid after notice period.
7. Common Misconceptions
“We agreed on 60‑day terms, so the Act won’t apply.” Wrong—any term beyond 45 days is void.
“Interest is optional.” No—courts have held it is statutory and automatic.
“Only manufacturers qualify.” Service providers registered as MSEs also benefit.
8. Key Takeaways
MSE suppliers must be paid within 45 days—period.
After 45 days, buyers owe compound interest at 3 × RBI Bank Rate.
The MSME Samadhaan portal offers fast, cost‑effective enforcement.
Clear documentation and timely notices turn legal rights into real cash.
Remember: The law is on your side. Use it—and keep your working capital working for you.
