MSME
Section 16 of the MSMED Act does not ask nicely. Compound interest, three times the bank rate, and a clause in your contract cannot waive it.
Check your DPDP readiness — free More on the blogMost buyers treat a late payment to a small supplier as a cash-flow decision — pay when it suits you, apologise if asked. The MSMED Act, 2006 does not treat it that way. If your supplier is a registered micro or small enterprise, s.15 sets the deadline and s.16 sets what happens when you miss it, and neither one is a suggestion.
Payment is due on whatever date is agreed in writing — but s.15 caps that agreement at 45 days from acceptance of the goods or services, no matter what the purchase order says. A "60-day credit period" clause is not enforceable past day 45; the Act overrides it "notwithstanding anything contained in any agreement". Silence in the contract is worse, not better: with no agreed date, payment is due 15 days after acceptance.
From the day after the deadline, s.16 makes the buyer liable for compound interest, with monthly rests, at three times the bank rate notified by the RBI. Not simple interest, not a penalty clause you can negotiate down — compound, monthly, statutory. A clause in the purchase order capping or waiving this interest has no effect; s.16 opens with the same "notwithstanding" override that governs the deadline. A 90-day payment term quietly became unenforceable the moment it was signed. The interest clock started running on day 46 whether either side wrote it down or not.
Check whether your vendors are Udyam-registered before you assume a 60- or 90-day term is safe — many small suppliers register without their customers ever asking. If they are registered, the 45-day clock is running regardless of what the PO says, and the cheapest fix is paying on time, not negotiating the interest after the fact. If you are the supplier owed money, this site's MSME statutory notice template computes the exact interest owed — principal, days overdue, and the compounding — and cites s.16 directly, ready to send.
Section 15 of the MSMED Act, 2006 requires a buyer to pay a registered micro or small enterprise within the date agreed in writing, and in any case within 45 days of accepting the goods or services. Where there is no written agreement, the limit is 15 days. The 45 days is an outer ceiling that a contract cannot extend, even if both sides sign something longer.
Section 16 sets compound interest with monthly rests at three times the bank rate notified by the Reserve Bank of India, running from the day after the payment became due. It is compound, not simple, and the rate is statutory: no clause in your purchase order or supply agreement can reduce or waive it, because section 16 applies notwithstanding any agreement between the parties.
No. Section 15 caps the agreed period at 45 days regardless of what the parties wrote, and section 16 imposes its interest notwithstanding anything in any agreement. A clause giving 90-day payment terms to an MSME supplier does not extend the statutory deadline; it simply is not effective against the Act.
Payments to a registered micro or small enterprise outstanding beyond the section 15 limit are disallowed as a deduction for the buyer in the year they accrued, and allowed only in the year actually paid. It follows from the statute rather than from any notice by the supplier, which is why buyers now ask suppliers for their Udyam registration status at onboarding.
Published 20 August 2026. Founder & CEO at VidhiSar. I have watched four companies pay for the same mistake, and it was never the mistake anyone expected. VidhiSar is software, not a law firm: every answer names the section it relies on so you can check it, and anything turning on your specific facts is worth putting to a professional. More about who builds this
Maintains the law explainers, calculators, templates and blog posts on vidhisar.in: checks them against the statute text and updates them when the law changes. Errors and changes in the law can be reported to legal@vidhisar.in.