How can MSME Suppliers recover Delayed Payment By FCS Shweta Gupta


Role of MSMEs in India

The contribution of MSME i.e. Micro, Small and Medium Enterprises, in a country’s economic growth & development, has been recognized by all countries and hence, is of paramount importance for India too.

The benefits drawn from MSME in India are:

  • A catalyst for the economy’s growth
  • Creates job on a large scale
  • Helps in sustaining economic growth
  • Propels the export sector
  • Encourages inclusive growth
"The Government of India is acutely aware that MSME is the pillar of the economy and will play a crucial role in fulfilling Prime Minister Modi’s dream of 5 trillion economies by 2025."

MSME Sector Riddled with Delayed Payments

The biggest hurdle faced by the MSME sector is the issue of ‘delayed payments’; most of the MSME suppliers (goods & services) face immense monetary hardships as their buyers do not pay on time.

Thus, pending payments from buyers derail these small businesses as:

  • they face liquidity crunch as cash flow is hindered,
  • they are pushed into debt-traps,
  • they face failure and closures, and
  • their future investment and growth plans are severely hampered.

The Survey data in MSME Annual Report of 2018-19 has cited that MSMEs comprise 45 per cent of India’s total manufacturing output, along with it an impressive 49 per cent of its exports. These figures put together to prove that MSMEs are the backbone of the Indian economy as it is responsible for giving employment to 30 per cent of India’s workforce.

"Thus, delayed payments, which is the biggest problem faced by MSMEs, should be dealt with in an effective manner otherwise, it will negatively impact the economy and drag it down."

Government Initiative & Relevant Provisions

There is no doubt that the MSME sector is riddled with pending payment problems but the government is not oblivious of their hardships and the present government has taken a number of measures to ease these pressures.

One effective tool which provides means to deal with the problem of delayed payments is Chapter V of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED).

This is available to the enterprises registered under the Act as the Act has been specifically framed to ease the problem of pending payment from the buyers to the suppliers.

#Section 15: This section provides that the buyer shall make the payment on or before the date as had been agreed between him and the supplier in writing or, in the absence of a written agreement, it should be done before the appointed date. (Appointed date means the day following immediately after the expiry of a period of 15 days from the date of acceptance or the date of deemed acceptance of the goods and services).

The provision further lays down that in no case the period agreed upon between the supplier and the buyer in writing shall exceed 45 days from the date of acceptance or the day of deemed acceptance.

The terms “designated/appointed date, day of acceptance and day of deemed acceptance” collectively used in the above provision has been defined in Section 2 of the definition part of the MSMED Act.

  1. Appointed Date: This term refers to the day immediately following after the expiry of 15 days period from the day of acceptance of goods or the day of deemed acceptance of any goods or any services by a purchaser from a supplier.
  2. Day of Acceptance: The term “Day of Acceptance” means: 

(a) The day the goods were delivered or services were rendered from the premises of Seller in actual; or

(b) In case any objection was raised in writing within 15 days from the day of the delivery of goods or the rendering of services by the buyer regarding the acceptance of goods or services, then the day of acceptance shall be the day on which such objection is removed by the supplier.

  1. Day of Deemed Acceptance: This simply refers to the point that if no objection is made in writing by the buyer regarding acceptance of goods or services within 15 days from the day of the delivery of goods or rendering of services, then it shall be considered the day of the actual delivery of goods or the rendering of services.

#Section 16: In case a buyer is unable to pay the supplier the amount that is due, he shall be liable to pay interest at the rate as mentioned in the agreement entered or as per the law in force.

Otherwise, the buyer is liable to pay compound interest with monthly interests in case of failure to comply with the aforesaid provision. Interest Rate will be 3 times of the bank rate notified by the RBI.

In event of any dispute arising that concerns any amount due, the provision points out that a reference should be made to the Micro and Small Enterprises Facilitation Council (MSMEF), constituted by the respective State Government.

#Section 17: Buyer to make payment along with interest.

#Section 18: An MSME can make reference to the council i.e. Micro and Small Enterprises Facilitation Council and the council may take initiative on its own discretion or take action as it may deem appropriate.

Though the provisions for recovery were always in place since the constitution of the Act, yet, the MSMEs which generally are small businesses registered under the Act, found it very tough to recover the pending payment, especially from the big companies.

As the problem of pending payments still persists, the Government of India has taken initiative and launched MSME SAMADHAAN portal, a unique and central point where all the MSMEs can file their complaint.

If you are also an MSME and are facing a delayed payment problem and do not know how, where and to whom to file a complaint application, then know how you can resolve your problem.

Procedure for Filing a Complaint

"A fairly simple, easy to fill application will help to launch your complaint against the defaulting entity."

#Step 1: 

  • Visit the above-mentioned website.
  • Look for the option of case filing for entrepreneurs/MSE units at the top.
  • Click on the option and enter your UAN and the registered mobile number.
  • Verify the one-time password sent to your registered email ID.

#Step II: 

  • Look for an option of Application entry that will help you to file the application with the respective authority.
  • Before filing the relevant application, the complainant needs to keep the details ready of:
  1. work orders and/or
  2. details of invoices or
  3. other relevant documents.

These documents shall help to prove your claim.

  • Fill in all the details carefully over the website.
  • In case of less than 5 invoices and work orders, they can be attached.
  • However, in case the number of such documents exceeds 5, then all of them have to be combined as a single PDF and uploaded.
  • Click on submit, thereafter a pop-up window will become visible for review. 

#Step III: 

  • After submission of the application, MSEFC will send this application to the concerned respondent and status of your complaint can be seen in the Entrepreneur Application list.  
  • The concerned officer, in case of any information being required by him, may request you to come and do the needful.

Your application will proceed faster than that of the court and you will be able to recover your pending amount.

MSME Samadhan: "the delayed payment monitoring system, is an appreciable initiative by the government as it effectively assists small businesses to address and recover delayed payments."

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