Compliance
Section 15 of the MSME Act caps payment to micro and small suppliers at 45 days from acceptance, triggering interest from day 46 if delayed, which can cost businesses significant cash flow loss.
Check your DPDP readiness — free More on the blogThe Micro, Small and Medium Enterprises Development Act of 2006 contains a specific provision that limits how long a buyer can postpone payment to a micro or small supplier. Known as the 45‑day payment rule, it applies the moment the buyer accepts the goods or services. The rule is designed to protect smaller businesses from cash‑flow strain caused by long credit periods.
When a buyer has accepted the delivery, payment must be made on the date agreed in the contract. If the contract does not specify a date, the buyer must pay within fifteen days of acceptance. In every case the deadline cannot exceed forty‑five days from the acceptance date. Any clause that tries to extend the period to sixty, ninety or one‑twenty days is overridden by the Act.
The Act defines the "appointed day" as the day immediately after the permitted period ends. This is the point from which compound interest under Section 16 starts to accrue. If payment is made on the agreed date, the appointed day is that date; if no date is agreed, it is the day after fifteen days, but never later than the day after forty‑five days.
Only micro and small enterprises benefit from this protection. The classification is confirmed by the Udyam registration certificate. Medium enterprises, even if they supply to larger buyers, are not subject to the 45‑day cap or the interest provisions of Section 16. The financial impact of ignoring the rule can be substantial. If a buyer delays beyond the appointed day, the supplier is entitled to compound interest on the overdue amount from day 46 onward. This interest cannot be waived by any contractual clause, meaning the cost of a 60‑day payment term is effectively the same as a 45‑day term plus interest for the extra days. Many businesses mistakenly calculate the period from the invoice date rather than the acceptance date. This miscalculation can lead to unintentional breaches of the Act and unexpected interest charges. It is essential to track the exact day the buyer signs for the goods or acknowledges the service. Even if a contract contains a longer payment term, the 45‑day cap remains enforceable. The longer term may still be relevant for other contractual obligations, but it does not alter the appointed day for interest calculation. Suppliers should therefore monitor the acceptance date and enforce payment by the 45‑day limit. For businesses that rely on timely cash inflows, the 45‑day rule offers a legal lever to demand prompt payment. Failure to invoke the provision can erode working capital, increase borrowing costs, and ultimately affect profitability.
If payment is received after the appointed day, the supplier can claim compound interest under Section 16 from day 46 onward. The interest rate is fixed by the Act and cannot be waived by any agreement, so the buyer incurs additional cost for every day beyond the deadline.
A longer clause can be written, but it does not change the legal deadline. Section 15 caps the appointed day at 45 days, so interest will still start accruing from day 46 regardless of the contract term.
No. The countdown begins on the day the buyer accepts the goods or services, not on the invoice date. Counting from the invoice can lead to a breach of the Act and unnecessary interest charges.
No. The protection is limited to micro and small enterprises as defined by the Udyam registration. Medium enterprises do not benefit from the capped payment period or the interest provisions of Section 16.
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