MSME delayed payment: the 45-day rule, interest, Samadhaan/ODR, 43B(h) and TReDS

MSME delayed payment is the most common complaint of small firms that sell to the government: the work is done, the bill is passed, and the money doesn't come. The law gives micro and small enterprises (MSEs) real rights here: a 45-day limit, interest at three times the RBI's bank rate, and a state council that must decide your case in 90 days. This guide explains those rights, how to file on MSME Samadhaan and the ODR portal, what section 43B(h) and TReDS mean for you, and how to chase a government payment step by step.

What counts as MSME delayed payment

Chapter V of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 (sections 15 to 24) deals with delayed payments. In short:

• Who is protected: micro and small enterprises. MSE Samadhaan says "any Micro or small enterprise having valid Udyam Registration can apply". Medium enterprises are not covered. If you aren't registered yet, see our Udyam registration guide.
• Which buyers: anyone who buys goods or services from you, including government departments, PSUs and private companies.

The 45 days payment rule for MSMEs

The Department of Expenditure's (DoE) goods manual (para 1.11.2-4-c) puts the rule this way: the agreed payment period "must not exceed forty-five days from the deemed acceptance" of what was supplied. If the buyer finds a problem, it must object within 15 days of receiving the material. If it doesn't object, the goods are taken as accepted.

Example. You deliver on 1 July and the buyer raises no objection within 15 days, so the goods are deemed accepted in mid-July. Even if the purchase order says "payment within 90 days", the Act caps the period at 45 days from acceptance, so interest starts running if you are still unpaid at the end of August.

Interest on delayed payment (section 16)

If the buyer doesn't pay in time, it owes compound interest with monthly rests at three times the bank rate notified by the Reserve Bank of India, from the day the payment fell due. "Monthly rests" means the interest is added to the amount due every month, and the next month's interest is charged on the total.

Illustration. Suppose three times the bank rate came to 18% a year (an assumed figure; check the RBI's current bank rate). On ₹10 lakh unpaid for six months, interest of 1.5% a month compounded comes to about ₹93,400.

The Act also makes buyers that keep audited accounts disclose unpaid MSE dues, with interest, in their annual accounts.

Payment timelines in government contracts

Your contract and the government's own rules often give shorter deadlines than 45 days:

The works manual (para 7.5.2-6) says responsibility should be fixed on officers for "unwarranted discretionary delays".

How to file on MSME Samadhaan and the ODR portal

MSE Samadhaan (samadhaan.msme.gov.in) has been the Ministry of MSME's delayed payment portal. It now says: "All new delayed payment applications will now be filed at the MSME ODR Portal." The Online Dispute Resolution (ODR) portal was launched in June 2025. Its address is odr.msme.gov.in, and the Press Information Bureau describes it as end-to-end, "from filing a claim to conciliation, arbitration, and final resolution".

To file:

1. Open odr.msme.gov.in and register as a seller with your Udyam details.
2. Enter the buyer's details: the office, its address and the officer you dealt with.
3. List each unpaid invoice with its date, amount and date of delivery or acceptance.
4. Upload your proof: purchase order or contract, invoices, delivery challans or proof of delivery, acceptance (CRAC, inspection note or measurement entries), and your letters asking for payment.
5. Submit and track the case online.

What the MSEFC does

The Micro and Small Enterprises Facilitation Council (MSEFC) is a state body. There were 161 across states and union territories in August 2026. When a case is referred to it:

• It first tries mediation (earlier called conciliation) between you and the buyer, itself or through a mediation service provider.
• If that fails, the dispute goes to arbitration, and the buyer can be directed to pay the amount due with interest.
• It must decide within 90 days of the reference, says MSE Samadhaan.
• A buyer that wants an award set aside must first deposit 75% of the amount in court.

The DoE works manual (para 7.7.5-3) adds that if an MSE party invokes the MSMED Act, its provisions prevail over the arbitration clause in the contract.

Section 43B(h) in plain words

The Finance Act 2023 added clause (h) to section 43B of the Income-tax Act, 1961, with effect from 1 April 2024 (assessment year 2024-25, so the 2023-24 accounts onwards). If a business owes money to a micro or small supplier and pays later than the section 15 limit (45 days, or 15 days with no agreement), it can claim the expense only in the year it actually pays. The usual leeway of paying before the return due date doesn't apply to this clause. The Income-tax Act, 2025 replaces the 1961 Act from 1 April 2026; ask your tax adviser where this rule sits in it for your year.

What it means for you:

• It presses taxpayers: companies, CPSEs, firms and main contractors that buy from you. A late payment can raise their tax bill for the year.
• It doesn't press government departments, which don't pay income tax. With them, rely on the MSMED Act interest and the escalation steps below.
• Mention it when you agree terms with a private buyer or a main contractor, and put the payment period in writing.

TReDS: get paid before the buyer pays

The Trade Receivables Discounting System (TReDS) is, in the DoE manuals' words, "an electronic platform for facilitating the financing / discounting of trade receivables" of MSMEs "through multiple financiers". The receivables can be due from companies, government departments and PSUs.

In simple terms, you put up an invoice the buyer has accepted, financiers offer to buy it at a discount, and you get the money early. The buyer then pays on the due date. TReDS runs under RBI guidelines, and invoices worth ₹3.47 lakh crore were discounted on it in 2025-26.

The August 2026 amendments require all CPSEs to settle invoices for goods and services bought from MSMEs through TReDS, and let states ask their own PSUs to do the same, once in force. Ask your CPSE buyer whether it is on TReDS.

GeM payment delays: timelines and escalation

On GeM, the buyer must pay within 10 days of the CRAC and your online bill, and GeM's buyer FAQ says GeM applies interest of 1% a month on the buyer organisation for delayed payments. If the money is late:

1. Raise an incident for "Delay in payment post CRAC generation". The buyer has 7 days to resolve it, after which you can escalate it to GeM.
2. Once the incident shows "Took Action", write to the GeM helpdesk with the contract, CRAC, invoice and a screenshot. Under GeM's payment escalation SOP, a monitoring team contacts the buyer, then a nodal officer, and finally GeM writes to the buyer's senior officers.

Before bidding, check the buyer's payment flag: Orange means more than 20 orders unpaid over 70 days after CRAC, Red more than 30. Full steps are in our GeM order process guide and the GeM helpdesk guide.

Checklist for chasing a government payment

1. Read the payment clause before you bid, and check the buyer's GeM flag where there is one.
2. Get acceptance on record: CRAC or SDAC, inspection note, or measurement book entries. Note the date.
3. Bill correctly: purchase order number, GSTIN, Udyam number and bank details on every invoice, with all the documents the contract asks for. Get a receipt or diary number.
4. Diary the due date: the contract date, and never later than 45 days from acceptance.
5. Write to the paying officer a week after the due date, listing invoices, dates and amounts, and mention your interest rights under sections 15 and 16.
6. Escalate in writing to the head of office, then the department's grievance cell. On GeM, use the incident route.
7. File on the ODR portal if a month or two of follow-up gets nowhere.
8. Protect your cash flow meanwhile: TReDS, or bill discounting with your bank.
9. Ask for TDS certificates on time, so you can claim the tax deducted.

Chase your retention money the same way once the defect liability period ends. For the other benefits of being an MSE, see MSME benefits in government tenders.

Common questions

What is the 45 days payment rule for MSME?

Section 15 of the MSMED Act says a buyer must pay a micro or small supplier by the date agreed in writing, and that date can't be more than 45 days after the buyer accepts, or is deemed to accept, the goods or services. With no agreement, the buyer must pay within 15 days.

How much interest can an MSME claim on delayed payment?

Compound interest with monthly rests at three times the bank rate notified by the RBI, from the date payment fell due. It is charged on the unpaid amount until it is paid.

How do I file a complaint on MSME Samadhaan?

The Samadhaan site now sends new delayed payment applications to the MSME ODR portal, odr.msme.gov.in. You register as a seller with your Udyam details, enter the buyer and invoices, upload proof, and the case goes to the Facilitation Council.

Does section 43B(h) apply to government departments?

Not in practice, because government departments don't pay income tax. It affects buyers that do, such as companies, CPSEs and main contractors.

Can a medium enterprise or trader file a delayed payment case?

No for medium enterprises: the protection is for micro and small enterprises. Retail and wholesale traders can register on Udyam only for priority-sector lending, under the Ministry's order of 2 July 2021.

How long does the MSEFC take to decide?

The law says 90 days from the reference. The August 2026 amendments, once in force, set 90 days for mediation and 90 days from the pleadings for the award.