Delayed payments are a direct detriment to the working capital cycles and cash flows of a businesses, which are key components of business profitability. In this blog, we have talked about various provisions of Micro, Small and Medium Enterprises Development Act, 2006’ and how these provisions protect the MSMEs from defaulting buyers, who clog up payments these enterprises.
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MSMEs have been facing serious issues relating to delayed payments that not only obstruct their cash flows, but also push many towards the threshold of insolvency.
A report by the Global Alliance for Mass Entrepreneurship (GAME), Dun & Bradstreet, and Omidyar Network India reveals that 80 per cent of the annual delayed payments amounting to a whopping ₹8.73 lakh crore were owed to micro and small suppliers.
Interestingly, 72.4 per cent of such instances can be avoided provided there is an effective and efficient way to tackle the menace of delayed payments.
In this Blog, we will discuss about various payment recovery rules by government, that you should be aware of.
Important rules related to recovery of MSMEs dues
he government of India has come up with several Acts to help MSMEs recover various payment dues from the public sector undertakings, private companies and individual company owners. One of such act is MSMED Act, 2006. This is one of the most important Act that you should be aware of, to recover all your payment dues.
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In this blog,we are sharing section 15, 16 and 17 of the ACT –
This section gives power to MSMEs to recover their dues even without a written contract and also safeguards them against misuse by buyers for payment terms.Buyers can be Pvt company, Public company, Govt Dept or any Individual.
Section 15. Liability of buyer to make payment
Where any supplier, supplies any goods or renders any services to any buyer, the buyer shall make payment therefore on or before the date agreed upon between him and the supplier in writing or, where there is no agreement in this behalf, before the appointed day: Provided that in no case the period agreed upon between the supplier and the buyer in writing shall exceed forty-five days from the day of acceptance or the day of deemed acceptance.
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“Appointed day” means the day following immediately after the expiry of the period of fifteen days from the day of acceptance or the day of deemed acceptance of any goods or any services by a buyer from a supplier.
Explanation—For the purposes of this clause
(i) “the day of acceptance” means, — (a) the day of the actual delivery of goods or the rendering of services; or (b) where any objection is made in writing by the buyer regarding acceptance of goods or services within fifteen days from the day of the delivery of goods or the rendering of services, the day on which such objection is removed by the supplier;
(ii) “the day of deemed acceptance” means, where no objection is made in writing by the buyer regarding acceptance of goods or services within fifteen days from the day of the delivery of goods or the rendering of services, the day of the actual delivery of goods or the rendering of services;
Section 16. Date from which and rate at which interest is payable
Where any buyer fails to make payment of the amount to the supplier, as required under section 15, the buyer shall, notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force, be liable to pay compound interest with monthly rests to the supplier on that amount from the appointed day or, as the case may be, from the date immediately following the date agreed upon, at three times of the bank rate notified by the Reserve Bank. ( Bank rate is 6.15 % as on 24.11.2022)
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Section 17- Recovery of amount due
For any goods supplied or services rendered by the supplier, the buyer shall be liable to pay the amount with interest thereon as provided under section 16.
Important take aways:
- Payment term cannot be more than 45 days.
- Objection to the goods or services delivered is eligible, if made in writing within 15 days from the receipt of goods.
- If buyer has raised the objection in writing within 15 days, ensure to take the removal of objection in writing.
- Delay in payment beyond 45 days attracts compound interest with monthly rates at three times of the bank rate notified by the Reserve Bank.
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