# 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.

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## 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.
    

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## 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.

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## 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.
    

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## 4\. Enforcement Via MSME Facilitation Council (Samadhaan)

1. **File an online application** on samadhaan.msme.gov.in with UDYAM number.
    
2. Council issues notice within 15 days and seeks settlement.
    
3. If unresolved, case moves to arbitration; award is enforceable like a court decree.
    
4. Buyer must deposit **75 % of award** before appealing.
    

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## 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.

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## 6\. Practical Steps to Invoke the Act

1. **Register on UDYAM**—without it you can’t file Samadhaan cases.
    
2. State payment terms clearly on POs and invoices (e.g., "Payable within 30 days; interest under MSMED Act applies thereafter").
    
3. Send a **formal notice** citing Sections 15–18 once the invoice crosses the 45‑day mark.
    
4. Keep records (invoice, delivery challan, emails) ready for upload.
    
5. File Samadhaan if unpaid after notice period.
    

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## 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.
    

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## 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.