MSME 45 Day Payment rule
MSME 45 Day Payment rule

Understanding impact of 45-Day payment clause on MSMEs

Navigating cashflow management amidst stringent regulations

Implementable from 1st April 2025, the new regulation, found in clause (h) of Section 43B requires companies to settle their dues with Micro, small and medium enterprises (MSMEs) within 45 days’ time. Non-compliance with the deadline shall result in tax liability, hence increasing the company’s costs. This article shall explore the implications of this amendment, strategies for MSMEs to manage their effects, and the role of Non-Banking Financial Companies (NBFCs) in supporting the MSMEs during this transition.

Implications of the Rule

Under this rule, if companies fail to pay Micro, Small, and Medium Enterprises (MSMEs) within 45 days, they are ineligible to deduct that expense from their taxable income. For example, if Company A has corporate tax rate of 35% and had purchased goods worth ₹100 from Company B. As per new slaw, if Company A fails to pay company B within 45 days, the expense incurred cannot be claimed under the cost of good sold, ultimately increasing profit before tax by 100, and an additional tax expense of ₹35.

The aim of this rule is to provide incentive to larger entities to prioritize timely payments to MSMEs, hence fostering a more robust economic environment and stimulating growth for these smaller businesses. However, the Consumer Merchandise Association of India (CMAI) highlighted that it is a common practice for even the reputable retailers to follow a 90-180 days payment timeframe. Hence, expecting all businesses to immediately adjust their operations to comply with a 45-day payment cycle is highly unrealistic.

What is the need for the new amendment?

The amendment is needed to address delayed payments which affect the functioning of the MSMEs. These organizations, which frequently operate on cash crunch, rely largely on constant cash flow to keep their operations running and drive expansion. However, late payments disrupt this critical cash flow, putting severe financial strain on their capacity to cover operational expenditures, pay suppliers and workers, and engage in business development activities.
By enforcing a quick settlement cycle, the new amendment reduces the financial burden on MSMEs by solving the cash crunch due to delayed payments. Along with improving the financial security of these enterprises, timely payments also boost economic growth by allowing swift reinvestment, expansion and hence job creation.

Additionally, the amendment also reflects the government’s commitment towards supporting and recognizing MSMEs’ role in driving economic development and job creation. It addresses the problem of late payments, which is in line with larger policy goals of creating an environment that helps MSMEs grow and make a real addition to the economy.

Strategies for MSMEs to address the funding requirements for payment settlement

  1. Digitizing invoices: Digital invoices have better readability and trackability. A follow up mechanism and easy mapping with the accounting software ensure that these invoices are not lost.
  2. Accurate accounting: Keeping accounts clean and upto date provides sufficient clarity on the business cashflow and helps in predicting cash crunch before the crisis, thereby providing the much needed business stability.
  3. Relationships with supplier / customers: Small businesses should invest in improving their relations with the suppliers and customers to improve their cashflow management. The new rule impacts entire supply chain and a clear communication and commitment from the customers and suppliers helps to plan for liquidity.
  4. Receivables / Payables tracking: A consistent effort in terms of reminders and follow ups might be necessary to collect the receivables. On the other hand, tracking payables aids in improving the supply relations and productivity of your small businesses.

How does this impact SMEs and small businesses?

SMEs and small businesses already operate on constrained cashflows. With this norm in place, even SMEs need to pay to their suppliers within 45 days which is slightly challenging, especially if their customers have an upper hand. A careful planning for liquidity becomes critical. Working capital loans from banks and NBFCs such as Red Fort Capital finance come to rescue with emergency fundings. NBFCs have higher risk appetite and also rely on data source to improve their credit underwriting and providing access to credit in the underserved small businesses with their products specifically designed for unique needs of small businesses.


The new amendment enforces a strict 45-day payments settlement due to MSMEs by creating a tax liability for the dues as specified by clause (h) of Section 43B of the new Finance Act, 2023. This amendment aims to support the small businesses by incentivizing early payments, hence boosting their growth and expansion activities. One hurdle to implementation of this new rule includes hesitation by vendors as the current average settlement cycle is 90-180 days (about 6 months). Small businesses need to tap into quick loan options like NBFCs to ensure adherence to the new rule. Overall, the amendment will bring growth and expansion to MSMEs by providing them statutory eligibility for early payments.

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About Red Fort Capital

Red Fort Capital is dedicated to empowering Indian MSMEs (Micro, Small, and Medium Enterprises) on their path to business growth through customized business loans. We understand that securing a business loan in India can pose significant challenges, particularly when factors like a less-than-ideal credit score, a relatively short business history, unclear financial records, or variable cash flow come into play.
As a respected Non-Banking Financial Company (NBFC), we take pride in offering a diverse range of secured business loans, spanning from 1 to 10 Crores. What sets us apart is our remarkable ability to disburse funds fast, in just 7 days. Our financial solutions are meticulously designed to cater to a spectrum of needs, including working capital requirements, equipment and machinery purchases, invoice/bill discounting, and last-mile financing, among others.

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