MSMEs, or micro, small, and medium-sized businesses, encounter numerous difficulties in maintaining efficient operations. The absence of enough working capital is one of these major issues. To run their daily operations, pay their utility bills, and pay their staff wages, MSMEs require a sufficient amount of operating capital.
The money that MSMEs get paid by their clients for the goods and services they provide makes up a sizable portion of the operating capital. But when purchasers fail to make these payments on schedule, MSMEs find it extremely difficult to continue operating. When they don't receive the necessary finances on time, many firms close.
The Rule of 45 Days and 15 Days
In order to prevent missed or delayed payments, the Indian government has created a new payment regulation under the MSME Act. We'll learn more about the new 45- and 15-day payment rules in this blog, which allow MSMEs the assurance to continue operating by shielding them from defaulters.
The credit period and the revised payment guidelines for MSMEs are outlined in Sections 15, 16, and 2(b) of the MSME Act of 2006. The following details will help you better understand the 45-day payment rule:
1. The customers purchase goods or services from the supplier (in this case, an MSME).
2. A deadline for payment for the provided goods or services is agreed upon by the suppliers and the purchasers.
3. The credit term is the span of time between the date of sale to the date of actual payment.
4. Buyers are now required by the MSME Act to pay suppliers within 45 days of receiving the products or services.
Here is an explanation of the 45-day payment term.
In what sense, then, does the 15-day payment rule apply? Here are some examples to help you understand this rule.
when there is no agreed-upon payment deadline between suppliers and purchasers
The MSME Act states that payment must be made within 15 days of receiving the products or services if the buyers and sellers did not agree on a credit period at the time of the transaction.
When a credit period longer than 45 days has been agreed upon by suppliers and buyers
The MSME Act mandates that purchasers pay suppliers within 45 days of obtaining goods or services, as we have already observed. But what does the rule say in the event that a credit period longer than 45 days has been agreed upon by both parties?
The law states that suppliers must still pay MSMEs within 45 days after delivering the goods or services. For MSMEs, this will offer stability and improved cash flow management.
When credit terms of more than 15 days but less than 45 days have been agreed upon by suppliers and customers
A mutually agreed upon credit period that is not subject to the Act's 15-day or 45-day payment conditions occasionally exists between purchasers and MSMEs. In this instance, the buyer must make payment within the stipulated time frame.
For instance, the 45- and 15-day payment requirements do not apply if both parties have agreed that payment must be made within 30 days of the date on which the goods or services are delivered.
What Recourse Do MSMEs Have When Purchasers Violate Payment Terms?
MSMEs are guaranteed timely payments from suppliers because of the protection and authenticity provided by the new UDYAM payment regulations. Notwithstanding, in the event that they do not obtain payment within 45 days, 15 days, or the prearranged credit period subsequent to the date of delivery of goods or services, they have the option to lodge a grievance with the Facilitation Council.
Section 16 of the MSME Act requires buyers to pay interest on past-due payments. Several salient features of these interest rates are as follows:
1. Every month, interest rates are compounded.
2. Interest rates are three times higher than the Reserve Bank of India's stated rate.
3. After 45 days, 15 days, or the mutually agreed credit period, interest rates are computed starting on the day after the credit period concludes.
Updated on: April 27, 2024