MSME 45-Day Payment Protection Explained (Sections 15-16, MSMED Act)
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Under Sections 15-16 of the MSMED Act, 2006, a buyer who receives goods or services from an Udyam-registered MSME supplier must pay within the period agreed in writing — capped at 45 days from acceptance — or, absent a written agreement, within 15 days (the statutory "appointed day"). Missing this deadline triggers compound interest at three times the RBI-notified bank rate, with monthly rests, and this cannot be overridden by any contract clause.
This is one of the more powerful — and least understood — protections that comes with being an Udyam-registered supplier. It applies automatically by statute; you don't need to have negotiated it into your contract, and your buyer can't contract their way out of it.
Section 15: The Payment Deadline
Section 15 of the MSMED Act sets out the deadline mechanism precisely. If there is a written agreement between the buyer and supplier specifying a payment date, that date is binding — but it can never lawfully exceed 45 days from the day of acceptance (or deemed acceptance) of the goods or services. If there is no written agreement, the buyer must pay before the "appointed day" — defined under Section 2 of the Act as 15 days from acceptance or deemed acceptance.
| Scenario | Payment deadline |
|---|---|
| Written agreement exists | The agreed date — but it cannot lawfully exceed 45 days from acceptance/deemed acceptance |
| No written agreement | The "appointed day" — 15 days from acceptance/deemed acceptance |
Section 16: The Penalty for Missing the Deadline
From the blog
Legal basis
45-day payment rule and delayed-payment interest formula — founder-facing summary
How the MSMED Act's payment protection actually works in practice: the deadline logic (with vs without a written agreement) and the exact interest formula on a late payment.
"Appointed day" — definition (MSMED Act 2006, s.2, as used in ss.15–16)
The default payment-due date under the MSMED Act when buyer and supplier have no written payment agreement: 15 days from the day of acceptance or deemed acceptance of goods/services.
MSMED Act 2006 ss.15–16 — 45-day payment rule and delayed-payment interest penalty
Section 15 caps the payment deadline to a registered MSME supplier at 45 days from acceptance; Section 16 imposes compound interest at 3x the RBI bank rate, compounded monthly, on any late payment — non-waivable by contract.
An MSA payment-term clause cannot extend a Udyam-registered supplier's statutory 45-day deadline
A negotiated MSA payment term of 60, 90, or any >45-day period does not extend a buyer's real payment deadline when the supplier is Udyam-registered. Section 16's compound-interest penalty runs from day 46 regardless of what the MSA says — this is the genuine cross-sell insight linking commercial-contracts content to the live MSME 45-day post and demand-notice template.
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The Clauses That Actually Decide Outcomes in Your Indian Services MSA
Limitation of liability, indemnity, IP ownership, termination, acceptance criteria, and a buyer's-seat read of vendor paper: the five or six clauses that decide what actually happens when an Indian services contract goes wrong, with the statutory basis behind each.
What Is Udyam Registration and Do You Need It?
Udyam Registration is the free, self-declared government registration that recognises a business as an MSME — unlocking tender set-asides, collateral-free lending routes, and IP fee rebates. It is not mandatory to operate a business, but most founders register early because the downside is zero and the upside compounds.
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