Recovery · Template

MSME non-payment notice format

A large buyer's finance team pays the supplier who is expensive to ignore. A statutory notice under the MSMED Act is what makes you that supplier: it converts a polite follow-up into a documented claim carrying compound interest that the buyer cannot contract out of, and it is the step that comes before the facilitation council.

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When you need this

  • When an invoice to a buyer has passed the agreed date, or 45 days from acceptance where no date was agreed
  • Before approaching the Micro and Small Enterprises Facilitation Council, so the demand is on the record
  • Where reminders by email have stopped producing a reply
  • When you want the interest liability documented from the correct date rather than the date you complained
  • Before writing the amount off, since the statutory interest can exceed the principal on an old default

What this document must contain

  • Your Udyam registration number — The whole remedy rests on registered micro or small status. State the number in the notice so the buyer cannot open by disputing standing.
  • Invoice-level particulars — Number, date, amount and what was supplied against each. A lump-sum demand is easy to query and slow to reconcile.
  • The date acceptance occurred — This is what starts the clock under s. 15. Identify it explicitly rather than leaving the buyer to infer it from the invoice date.
  • The interest computation — Show the basis — compound interest, monthly rests, three times the RBI bank rate — with the rate you have applied and the date from which it runs, so the figure can be checked rather than argued about.
  • A clear payment deadline — A demand without a date is a reminder. Give a specific date and state what follows it.
  • Reference to the facilitation council — Naming the next step under the Act is what changes the buyer's calculation, because a council reference is an actual forum rather than a threat.

The law that governs it

  • MSMED Act, 2006 — s. 15 — Payment is due on the agreed date, or within 45 days of acceptance where no date is agreed. The 45-day period is a statutory ceiling, not a default the parties can extend.
  • MSMED Act, 2006 — s. 16 — Compound interest with monthly rests at three times the RBI-notified bank rate accrues on the outstanding amount. The liability is statutory and cannot be waived by contract.
  • MSMED Act, 2006 — ss. 18–19 — A supplier may refer a dispute to the Micro and Small Enterprises Facilitation Council for conciliation and, failing that, arbitration. There are conditions on an appeal against an award, which is part of why the route carries weight.

Common mistakes

  • Sending a notice without quoting the Udyam number, letting the buyer open by disputing MSME status
  • Computing simple interest, which understates the claim — the section provides for compound interest with monthly rests
  • Running interest from the date of the complaint rather than the date payment fell due
  • Bundling several invoices into one figure with no breakdown, which slows reconciliation and invites a partial payment
  • Waiting so long that the commercial relationship is unrecoverable, when an early notice is usually settled quietly

Frequently asked questions

When can I send an MSME non-payment notice?

Once payment has passed the date agreed in writing, or 45 days from the day of acceptance or deemed acceptance where no date was agreed, under s. 15 of the MSMED Act, 2006. There is no requirement to wait longer, and the interest liability under s. 16 runs from the appointed day rather than from the date you complain.

How is MSME interest calculated?

Section 16 of the MSMED Act, 2006 provides for compound interest with monthly rests at three times the bank rate notified by the Reserve Bank of India. Because the rate is the notified bank rate at the relevant time, the computation should state the rate applied and the period, so the buyer can verify it. Confirm the current notified rate before issuing the notice.

Can the buyer's contract override the 45-day rule?

No. Section 15 caps the period the parties may agree, and s. 16 states that the interest liability applies notwithstanding anything contained in any agreement. A contractual 90-day term does not displace either.

What happens if the buyer still does not pay?

The dispute may be referred to the Micro and Small Enterprises Facilitation Council under s. 18, which conducts conciliation and, failing settlement, arbitration. The statutory notice is the step that establishes the claim and the accrual date before that reference.

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