The Law That Most Finance Teams Are Ignoring
The MSMED Act mandates that all payments to MSME vendors must be made within 45 days of accepting delivery. This is not a guideline. It is a legal requirement.
Yet our analysis of Indian mid-market companies shows that a significant portion routinely pay MSME vendors in 60, 90, or even 120 days - often not intentionally, but because they simply do not track the deadlines.
What the MSMED Act Actually Says
Section 15 of the MSMED Act requires compound interest at 3× the RBI bank rate, calculated monthly, on late payments to MSME vendors. As of 2026, the RBI bank rate is approximately 6.5%, making the penalty rate approximately 19.5% per annum - higher than most business loan rates.
Who Counts as an MSME?
A vendor qualifies as MSME if registered under UDYAM and falls within:
- ✓Micro: Investment up to ₹1 crore, Turnover up to ₹5 crore
- ✓Small: Investment up to ₹10 crore, Turnover up to ₹50 crore
- ✓Medium: Investment up to ₹50 crore, Turnover up to ₹250 crore
Many electrical component suppliers, packaging vendors, and industrial services companies in India qualify as MSME.
The 45-Day Clock: When Does It Start?
The clock starts from the date of delivery and acceptance of goods - not the invoice date.
Example: Vendor delivers on June 1st. Your warehouse files GRN on June 1st. Vendor submits invoice on June 5th. Payment must be made by July 16th (June 1 + 45 days).