Client paying late? India's 45-day rule lets small businesses charge 17.25% interest
Micro and small businesses with Udyam registration must be paid within 45 days, or buyers owe compound interest at 3× the RBI bank rate. Here's how it works.
3 min read
The rule in plain words
India's MSME Development Act protects micro and small suppliers of goods and services from buyers who sit on their invoices. It sets a hard outer limit on how long a buyer can take to pay, and an interest rate that gets expensive quickly.
| Situation | Payment due |
|---|---|
| You agreed a payment date in writing | On that date, which can't be more than 45 days after the buyer accepted the goods or service |
| No written agreement on payment | Within 15 days of acceptance |
| The buyer raises no written objection within 15 days of delivery | The delivery date counts as the date of acceptance |
“A buyer can't contract their way past 45 days. If they pay a registered micro or small supplier late, the interest starts on its own: three times the RBI bank rate, compounded monthly.”
Who it protects (and who it doesn't)
- Covered: micro and small enterprises, manufacturers and service providers, with a valid Udyam registration. Freelancers and consultants can register too.
- Not covered: medium enterprises, and anyone without Udyam registration. Registration is free on the government's Udyam portal.
- It applies to amounts owed by buyers: companies, firms, traders and government departments that buy from you.
Register on Udyam before you need it. A claim needs a valid registration, so get yours now rather than when a client is already 60 days late.
How much interest are you owed?
The interest is compound with monthly rests: every month, the unpaid interest is added to the amount and earns interest itself. At 17.25% a year, that's about 1.44% a month. On ₹1,00,000 paid 90 days after it was due, the buyer owes about ₹4,375 in interest on top.
Late-payment interest calculator
An estimate using 30-day months. Not legal advice.
The bank rate was 5.75% on 2026-10-22; when RBI changes it, the interest rate changes too. The calculator counts 30-day months and is an estimate; the Council works out the exact figure in a claim.
How to claim it, step by step
- Send a written payment reminder with the invoice number, amount, due date and how many days it is overdue. Mention that interest applies under the MSMED Act.
- If they still don't pay, send a firmer reminder with a statement of account showing every unpaid invoice.
- File a delayed-payment application on the MSME ODR portal (odr.msme.gov.in) with your Udyam number, the invoices and proof of delivery or acceptance.
- Your state's Micro and Small Enterprises Facilitation Council takes it up, first through conciliation, then arbitration if needed, and can direct the buyer to pay the amount with interest.
Most disputes never reach step 3. A reminder that names the rule and the interest rate tells a buyer you know your rights.
Make your invoices do the work
- Your Udyam registration number, near your GSTIN.
- Clear payment terms, for example "Payable within 30 days of acceptance", never more than 45.
- A line such as "Interest on delayed payment applies under the MSMED Act, 2006."
- A due date, not just an invoice date, so there's no argument about when the clock started.
- Keep proof of acceptance: a signed delivery challan, an approval email or a completion message.
Questions people ask
What is the 45-day payment rule for MSMEs?
Buyers must pay a registered micro or small supplier by the agreed date, never more than 45 days after accepting the goods or service, or 15 days if nothing was agreed.
What interest can an MSME charge on late payment?
Compound interest with monthly rests at three times the RBI bank rate, which is 17.25% a year at today's bank rate of 5.75%.
Does the 45-day rule apply to freelancers?
Yes, if the freelancer has a valid Udyam registration as a micro or small enterprise providing services.
Where do I complain about a delayed MSME payment?
On the MSME ODR portal, odr.msme.gov.in. Your state's MSE Facilitation Council handles the case through conciliation and arbitration.
Sources
- Ministry of MSME — MSME Samadhaan: delayed payments, 45 days, interest at 3× bank rate
- Ministry of MSME — MSME ODR portal for delayed-payment claims
- Development Commissioner (MSME) — Legal framework, MSMED Act 2006
- Reserve Bank of India — current Bank Rate
- Ministry of MSME — Udyam registration
Checked on 22 Oct 2026. Prices and rules change; check the sources before relying on a number. The legal and tax points in this post haven't been reviewed by a Chartered Accountant yet. This is general information, not legal or tax advice.