The MSMED Act 45-day payment rule, explained simply

Why a 45-day rule exists at all

Small suppliers in India have always carried their customers' working capital. Goods go out on Monday, the bill gets "processed" for two months, and the supplier borrows to pay salaries in the meantime. The Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) tried to fix this by putting a legal time limit on how long a buyer can sit on a small supplier's money.

The heart of it is Section 15, and it is shorter and simpler than most people expect.

What Section 15 actually says

In plain language, Section 15 says:

• The buyer must pay on or before the date agreed in writing between buyer and supplier.
• That agreed period cannot exceed 45 days from the day of acceptance or deemed acceptance of the goods or services.
• If there is no written agreement on payment terms, the buyer must pay before the "appointed day". Section 2(b) defines that as the day immediately following the expiry of 15 days from acceptance.

So 45 days is a ceiling, not a default. If your invoice says "payment within 30 days" and the buyer signed the purchase order, 30 days applies. If nothing is written down anywhere, you are looking at 15 days, not 45.

Who is protected

The protection belongs to the supplier, and Section 2(n) defines a supplier as a micro or small enterprise that has registered. Today that means a valid Udyam registration showing the enterprise as micro or small, in manufacturing or services.

A few practical points:

• Medium enterprises are not covered by the delayed-payment provisions (NBCC v. State of West Bengal, Supreme Court, 10 January 2025).
• The buyer can be anyone: a large company, a government department, a public sector unit, or another small business.
• Retail and wholesale traders are excluded in practice. Traders can register on Udyam, but the Ministry of MSME has limited their benefits to priority sector lending and expressly excluded the delayed-payment provisions (Ministry of MSME Office Memorandum dated 1 September 2021, following the OM of 2 July 2021). Facilitation Councils and the portal reject trader applications; whether an executive order can narrow the Act is legally untested. If you are a distributor or wholesaler, still agree written credit terms, and rely on reminders, a demand letter, mediation and a civil or summary suit if needed.
• Timing of registration is unsettled. Earlier Supreme Court rulings said a registration made after the contract does not cover earlier supplies, but in NBCC (2025) the Court doubted this and referred the question to a larger bench, which has not yet ruled. Register on Udyam before you sell. If you registered later, take legal advice.

What "acceptance" means

The 45 days (or 15 days) do not start from the invoice date. They start from the day of acceptance, and the Act defines it in two ways.

1. Actual acceptance. Normally the day goods are actually delivered or services are rendered.
2. Deemed acceptance. If the buyer does not raise a written objection within 15 days of delivery, the delivery day is treated as the day of acceptance.

If the buyer does object in writing within 15 days, for example about damaged cartons or a short shipment, the day of acceptance becomes the day you remove that objection, such as the day the replacement stock reaches them.

This is why delivery proof matters so much. A signed delivery challan, an e-way bill trail, or a courier proof of delivery is what fixes the start of the clock.

A worked example with real dates

Say you are a small packaging manufacturer and you deliver cartons worth ₹2,40,000 to a buyer on 1 August 2026, and the buyer accepts them that day.

No written agreement. The 15-day period runs from 2 to 16 August, because the first day is excluded when counting (General Clauses Act, Section 9). The appointed day is 17 August, so the buyer must pay by 16 August, and interest runs from 17 August. Some practitioners count one day earlier, so the cautious course is to treat 15 or 16 August as the deadline.

Written agreement of 60 days. The agreed period is above the ceiling, so it is capped: pay by 15 September (45 days from 1 August), with interest from 16 September. Be aware of an alternative reading that treats an over-45-day term as no valid agreement at all, which would bring back the 15-day default. No Supreme Court ruling settles this.

Notice the third row. The buyer may have agreed to 60 days on paper, but for MSMED Act purposes the legal due date is at most 45 days from acceptance. Treat these dates as a guide and confirm with an advocate before filing anything.

What happens when the buyer pays late

Section 16 says that if the buyer misses the due date, it must pay compound interest with monthly rests at three times the bank rate notified by the Reserve Bank of India, from the appointed day or the day after the agreed date, notwithstanding anything in any agreement. Section 17 makes the buyer liable for the principal plus this interest.

For example, at a Bank Rate of 5.75% (RBI, November 2026) the rate is 17.25% a year, compounded monthly. The Bank Rate changes from time to time, so check rbi.org.in for the current rate on the date of your calculation.

There is also a tax angle. Under Section 23 of the MSMED Act, the buyer cannot claim this interest as a deductible expense. Separately, Section 43B(h) of the Income-tax Act, 1961, carried forward as section 37(2)(g) of the Income-tax Act, 2025 from 1 April 2026, affects when buyers can deduct the purchase cost itself if they pay after the Section 15 time limit. We explain that in Section 43B(h) explained.

Use the calculator below to estimate how much interest has built up on an overdue invoice.

You can also open the full MSME interest calculator on its own page.

How to use this rule without spoiling the relationship

Knowing the law is useful. Leading with it in the first message is usually not. A practical approach:

1. Put terms in writing

   Print "Payment due within 30 days of delivery" (or whatever you agree, up to 45) on every quotation, PO acknowledgement and invoice. Mention your Udyam number on the invoice.

2. Keep delivery proof

   File signed challans or proof of delivery against each invoice so the acceptance date is never in doubt.

3. Remind early and politely

   Send a friendly reminder before the due date and on the day it falls due. Our WhatsApp reminder templates are a good starting point.

4. Mention the Act only when needed

   If payment is still stuck weeks later, a calm line noting that the invoice is covered by the MSMED Act often moves things. If not, and you are an eligible micro or small manufacturer or service provider, you can file on the MSME ODR portal.

Udhaar Wapas builds this sequence into every recovery case, from the first friendly nudge to the formal letter, so you are not chasing invoices from memory. See how it works.