The 45-Day Payment Rule: How Section 43B(h) and MSME Samadhaan Get You Paid

Ask any small manufacturer what actually kills their business and the answer is almost never demand. It is a Rs.40 lakh receivable that was due in March and is still outstanding in August, funded in the meantime by an overdraft at 11 percent. Having assessed working capital files from inside lending institutions, we can tell you that delayed payments are the single most common reason an otherwise healthy MSME ends up looking like a credit risk. Since 2024, the law has given you a genuinely powerful lever against this, and most small businesses still do not use it.

What the law actually requires

Two separate provisions work together here, and confusing them is why most business owners misunderstand their own position.

The MSMED Act, 2006 sets the payment timeline. Where a buyer purchases goods or services from a registered micro or small enterprise, payment must be made within the period agreed in writing, and that agreed period cannot exceed 45 days from the date of acceptance or deemed acceptance of the goods. If there is no written agreement, the limit is 15 days. Beyond that, the buyer is liable to pay compound interest at three times the RBI bank rate, calculated monthly.

Section 43B(h) of the Income Tax Act is the enforcement teeth added in 2024. It disallows the buyer from claiming a deduction for the expense in the year it was incurred unless the payment was actually made within the MSMED Act timeline. The deduction shifts to the year of actual payment. For a buyer with a March year-end, an unpaid MSME invoice does not merely delay a payment; it inflates their taxable profit for that assessment year.

This is the mechanism that changed behaviour, and it is worth being precise about why. Before 2024, delaying payment to a small supplier was almost costless. After 2024, it has a direct and quantifiable tax consequence for the buyer’s own books, which their auditor and their CFO both care about far more than a supplier’s follow-up email.

Note the boundary carefully. The interest liability and the 43B(h) disallowance apply to purchases from registered micro and small enterprises. Medium enterprises are outside the 43B(h) provision, and traders were brought within Udyam registration for priority sector lending purposes but not for the delayed payment provisions. Your supplier status determines your rights.

Why this matters for your borrowing, not just your cash flow

Most coverage of the 45-day rule treats it purely as a receivables issue. From the credit side, it is more than that.

When a lender assesses your working capital requirement, it calculates your operating cycle: inventory days plus receivable days minus payable days. Every additional day your customers take to pay increases the working capital you need, and the limit the bank sanctions is derived from that calculation. A business with 90-day receivables genuinely needs a larger limit than one with 45-day receivables at the same turnover.

The problem is that a larger limit is not free. It costs interest on higher average utilisation, and it makes your file look more leveraged. Two businesses with identical Rs.5 crore turnover and identical margins can present very differently to a credit officer purely on receivable discipline.

There is a second, subtler effect. Credit teams look at receivable ageing schedules and concentration. A debtor list where 40 percent of outstandings sit beyond 90 days and are owed by two large buyers reads as dependency and collection weakness, and it directly suppresses the drawing power the bank permits against those book debts. Most banks apply a haircut that excludes receivables beyond 90 days from drawing power entirely.

The escalation path, in the order that works

Escalating badly costs you the customer without recovering the money. Sequence it deliberately.

Start with documentation, not confrontation. Before any formal step, ensure you hold the purchase order, proof of delivery or service completion, the invoice bearing your Udyam number, and any written acceptance. Deemed acceptance applies where the buyer raised no objection within 15 days of delivery, and that silence works in your favour, but you need the delivery proof to establish the date.

Send a written reminder that references the statute without threatening. A line stating that the invoice falls under the MSMED Act 45-day provision and that your firm is a registered micro or small enterprise is usually enough. Many payments are released at this stage simply because the buyer’s finance team now sees a 43B(h) exposure on their own books.

If that fails, file on MSME Samadhaan. This is the government portal for delayed payment complaints, and filing is free and online. The complaint goes to the Micro and Small Enterprise Facilitation Council in the buyer’s state, which first attempts conciliation and can then proceed to arbitration. An award from the Council is enforceable.

Two practical notes on Samadhaan. Timelines vary considerably by state, and the Council process can take several months, so it is not an emergency cash solution. But its existence changes negotiations well before an award is issued, because a filed complaint appears in the buyer’s compliance reporting.

Enforcing without losing the customer

The reason most small suppliers never invoke the rule is not ignorance. It is that the delayed payer is often their largest customer, and the fear of losing that account is entirely rational.

Two things make this less binary than it looks. First, the 43B(h) consequence lands on the buyer whether or not you complain. Their auditor identifies unpaid MSME dues at year-end regardless, so a polite reminder in January is not creating a problem for them; it is giving them advance notice of one they already have. Framing it that way changes how the conversation lands.

Second, the leverage is strongest before the buyer’s financial year closes and weakest immediately after. A reminder sent in February about invoices from November carries real urgency for a buyer with a March year-end. The same reminder in June carries almost none, because the disallowance is already booked. Time your follow-ups to their year-end, not yours.

Where the relationship genuinely cannot survive a formal escalation, the honest answer is that the customer is not as valuable as it appears. A buyer whose business is contingent on you funding their working capital for 120 days at your own cost is transferring their financing burden onto your balance sheet. Price that into your quotes on the next order, or reduce your exposure deliberately over two or three quarters rather than absorbing it indefinitely.

The alternative that gets you paid immediately

Escalation recovers money slowly. If the underlying problem is that your large buyers pay in 90 days and your business needs the cash in 30, there is a structural fix.

TReDS, the Trade Receivables Discounting System, lets you sell an accepted invoice to a financier at a discount and receive funds within days, with the financier collecting from the buyer on the due date. Because the credit risk transfers to the buyer rather than sitting with you, the discounting rate reflects the buyer’s credit standing, which for a large corporate customer is usually far better than your own borrowing rate.

Companies above a specified turnover threshold and all central public sector enterprises are required to onboard onto TReDS, so many of your large buyers are already on the platform. Our guide to TReDS invoice financing covers the onboarding process and the economics.

Before discounting an invoice, use the Invoice Discounting Calculator to annualise the discount and platform fee and compare that cost with funding the same collection period through cash credit.

The choice between the two is not either-or. Use TReDS for large buyers who accept invoices promptly, and reserve Samadhaan for buyers who dispute or ignore.

The practical next step is to pull your receivables ageing today and separate it into three buckets: within 45 days, 45 to 90 days, and beyond 90 days. Anything in the third bucket owed by a registered corporate buyer is a 43B(h) exposure on their books right now, and a single written reminder citing the provision recovers more of that bucket than most business owners expect.