The 45-Day Payment Rule: What Small Suppliers and Their Buyers Should Do About It

⏱ 7 min read|Published 18 October 2026|By Dibyendu Choudhury

Most small manufacturers I have taught or advised can tell me their order book to the rupee. Far fewer can tell me, without searching, how many of their invoices are older than forty-five days. That second number decides whether the factory can buy raw material next week, and for the last few years the law has had a good deal to say about it.

This note is a practical walk through the payment rule that protects micro and small suppliers in India, written for two readers: the supplier who is waiting to be paid, and the buyer who would like to stay on the right side of the rule. I am a teacher of business and enterprise, not a lawyer or a chartered accountant, so please treat what follows as an orientation and confirm the details for your own case with a professional before you act on them.

The rule in plain words

Two provisions work together. The first sits in the Micro, Small and Medium Enterprises Development Act, 2006. Section 15 says a buyer must pay a micro or small supplier for goods or services on or before the date agreed in writing, and that the agreed period must not be longer than forty-five days from the day of acceptance of the goods or services. If there is no written agreement, the buyer must pay within fifteen days of the day of acceptance. Acceptance matters: if a buyer does not raise an objection within fifteen days of delivery, the law treats the goods as deemed accepted, and the clock starts from there.

The second provision sits in the Income-tax Act, 1961, in Section 43B, clause (h), which came into effect for payments from the financial year 2023-24. In simple terms, a buyer who claims a business expense for something bought from a micro or small enterprise can claim it for that year only if the payment is actually made within the time limit set by Section 15. If the payment slips past the limit, the deduction is pushed to the year in which the money is actually paid. For a buyer, then, a late payment is no longer just a courtesy problem; it can change the tax position for the year.

Two details are easy to miss. The tax clause applies to suppliers who are micro or small enterprises registered on the Udyam portal, so a medium enterprise or an unregistered supplier is outside it. Practitioners generally look at the supplier's registration status at the time of supply, so a buyer should ask for the Udyam number and keep a copy, and confirm the point for the case in hand.

What the supplier can claim when the buyer is late

Section 16 of the same Act provides for interest on delayed payment. The interest is compound, with monthly rests, at three times the bank rate notified by the Reserve Bank of India. Section 17 makes the buyer liable for the principal and the interest, and the Act provides a route for recovery through the Micro and Small Enterprises Facilitation Council under Section 18, which first attempts conciliation and can then move to arbitration. The Government also runs the MSME Samadhaan portal, where a supplier can file a delayed-payment application online.

I would not pretend that every supplier wants to use these remedies. A small firm that sells most of its output to two large customers will think hard before it files against either of them. That is a human reality, not a legal one, and it is the reason the routine I describe below matters more than the remedies. The best use of the law is as the quiet reason a buyer pays on time, not as the loud thing a supplier does once relations have already broken.

A worked example, a composite and not a real firm

Consider a made-up fabrication unit that supplies sheet-metal housings to a mid-sized equipment maker. The unit invoices 12 lakh rupees a month. Its raw material suppliers expect payment in thirty days, and its workers are paid monthly. The written purchase agreement with the buyer says "payment within 60 days of invoice".

Under Section 15 that clause does not stand: the agreed period cannot exceed forty-five days from acceptance. So the supplier's real position is that payment is due within forty-five days of acceptance, whatever the paperwork says. If the buyer pays on day sixty, the supplier carries an extra fifteen days of working capital on 12 lakh rupees. At a cash-credit rate of, say, 11 per cent a year, that is roughly 5,400 rupees of financing cost on one invoice, every month, which the supplier quietly absorbs. Over a year, on a steady order flow, it adds up to a sizeable sum that the unit never sees as a line in its accounts.

On the buyer's side the same example looks different. If that payment on day sixty is made after the forty-five day limit, the deduction for that purchase may be deferred to the year of payment under Section 43B(h). For an invoice raised in March and paid in May, that can mean the expense moves into the next financial year. The buyer's finance team may not notice until the audit, and by then the supplier relationship has already paid for the delay.

A routine for the supplier

The first step is dull and powerful: keep an ageing list. Once a week, list every unpaid invoice with its acceptance date, and mark the ones that cross thirty days in one colour and forty days in another. It takes ten minutes. The point is that you discover a late payment on day forty, when a polite phone call still works, and not on day ninety, when it has become a dispute.

The second step is to put the rule in the paperwork. Quote your Udyam registration number on every invoice and every purchase-order acknowledgement. Write the acceptance date on the delivery challan and ask the buyer's store to sign and date it. If a buyer objects to any consignment, ask for the objection in writing within fifteen days; silence helps you, but a dated signature helps you more.

The third step is to make the first reminder a friendly one that quotes the rule without drama. "Our invoice dated the third completes forty-five days on the eighteenth; could your accounts team confirm the payment date?" is a sentence no reasonable finance manager is offended by. Only if the delay becomes routine is it worth discussing interest or the Samadhaan portal, and even then I would speak to a professional adviser first.

A routine for the buyer

For a buyer, the most useful single step is to sort your vendors by status. Ask each supplier for the Udyam certificate once, record whether they are micro, small or medium, and tag them in your accounts system. The tag lets your payables team see which invoices have a forty-five-day clock and which do not. Many late payments to small suppliers are not deliberate; they happen because nobody told the payables clerk that this particular vendor has a legal deadline.

Then change the payment run. A weekly payment run for tagged suppliers, rather than a monthly one, removes most of the problem by itself. A monthly run that happens to fall on the fifty-second day is what causes trouble, because the supplier's invoice was raised just after the previous run. Finally, agree the payment terms in writing and keep them at or below forty-five days; a clause that promises more is not enforceable against the supplier, and it quietly sets your own team up to miss the tax deadline.

A thought from the old books

The Gita speaks of work done without clinging to its fruit, and it is sometimes misread as an argument for patient suffering. I read it differently in this context. The same text insists on dharma, on each person giving what is due in the relationships they hold. A payment made on the due date is a small act of that dharma, and a payment withheld for convenience is a small act of the opposite. The law has simply written down, for a particular class of supplier, what a decent business already knows.

If you run a small unit, pick one day this week, open your invoice list, and count how many are past forty days. If you run a buying team, ask your payables head one question: which of our suppliers are registered micro or small enterprises, and how many of their invoices did we pay after forty-five days last quarter? The two answers, placed side by side, usually describe the whole problem and most of the solution.

You can find more of my practical notes for small business owners and for people who manage them under the blog index. If a topic would help your own unit or class, tell me and I will write about it.

Published 18 October 2026 · dibyenduchoudhury.com