The process involves reviewing outstanding receivables, identifying delayed payments, issuing payment reminders, and verifying compliance with MSMED Act payment timelines. Eligible MSMEs can initiate recovery proceedings through the MSE Facilitation Council for unresolved delayed payments.

Delayed Payment & Receivables Checklist

1. Identify MSME Supplier

• Confirm that the supplier is a Micro or Small Enterprise for the purpose of the applicable delayed-payment provisions.
• Obtain/verify the supplier's Udyam details as supporting evidence.

2. Identify the Transaction

• Identify the relevant purchase order/agreement.
• Identify invoice number, invoice date and invoice amount.
• Confirm supply of goods or rendering of services.

3. Determine Acceptance / Deemed Acceptance

• Determine the date of acceptance of goods/services.
• Check whether any written objection was raised by the buyer.
• Determine the date of deemed acceptance, where applicable.

4. Check Payment Terms

• Review the written agreement, if any.
• Determine the agreed payment period.
• Verify that the agreed period does not exceed the statutory limit of 45 days.

5. Determine Statutory Due Date

• Check whether a written agreement for payment exists.
• Where an agreement exists, ensure the agreed period does not exceed 45 days.
• Where there is no written agreement, apply the statutory 15-day period from acceptance/deemed acceptance as applicable.
• Record the invoice-wise statutory due date.

6. Monitor Payment

• Compare actual payment date with the statutory due date.
• Identify delayed invoices and outstanding principal.
• Track part-payments and balance outstanding.
• Maintain ageing based on statutory due date.

7. Calculate Statutory Interest

• Calculate interest under Section 16 of the MSMED Act for delayed payments.
• Apply three times the RBI bank rate.
• Apply compound interest with monthly rests.
• Update interest calculation for subsequent payments

8. Review Dispute / Objection

• Check whether the buyer has raised any written objection.
• Verify the date and nature of the objection.
• Maintain supporting evidence.
• Separate disputed and undisputed amounts.
• Reconcile any deductions, credit notes or set-offs.

9. Reconcile Outstanding Amount

• Reconcile the amount with:
  • Vendor ledger
  • Invoice records
  • Payment records
  • Credit/debit notes
• Confirm the final principal and interest outstanding.

11. Follow Up / Issue Demand

• Communicate the overdue amount to the buyer/supplier, as applicable.
• Demand payment of outstanding principal and applicable statutory interest.
• Maintain correspondence and payment commitments.

12. Monitor MSEFC Proceedings

• Where applicable, initiate/monitor reference before the Micro and Small Enterprises Facilitation Council (MSEFC).
• Track conciliation and arbitration proceedings.
• Monitor settlement, order or award.
• Review the 75% pre-deposit requirement under Section 19 where an applicable award/order is challenged.

13. Review Award / Challenge

• If an award/order is passed, verify the amount payable.
• Where a challenge is proposed, review the statutory 75% pre-deposit requirement and applicable legal procedure.

14. Review Section 43B(h)

• At year-end, identify amounts payable to Micro and Small Enterprises.
• Check payment dates against the requirements of Section 43B(h).
• Determine the applicable tax adjustment/disallowance.
• Maintain a separate tax working.

15. Year-End Reconciliation

• Reconcile MSME outstanding balances with books of account.
• Verify principal and interest payable.
• Review payments made after year-end.
• Check applicable financial statement disclosures.

16. Close the Matter

• Confirm receipt/payment of principal.
• Confirm settlement of statutory interest.
• Update the MSME payable register.
• Close the invoice only after all applicable amounts and compliance requirements have been addressed.

NOTES

• 45-Day Limit: Where a written agreement exists, the agreed payment period cannot exceed the statutory maximum of 45 days under the MSMED Act.
• Acceptance Date: The date of acceptance or deemed acceptance is important for determining the payment deadline.
• Interest: Delayed-payment interest is governed by the MSMED Act and is generally linked to three times the RBI bank rate, with compound interest and monthly rests.
• Written Objection: Maintain documentary evidence of any objection regarding acceptance of goods or services.
• Principal & Interest: Payment of principal should be separately reconciled with statutory interest liability.
• MSEFC: Unpaid dues may be subject to proceedings before the Micro and Small Enterprises Facilitation Council.
• 75% Deposit: A statutory pre-deposit requirement may apply when challenging an applicable MSEFC award/order.
• Section 43B(h): Buyer-side tax implications should be reviewed separately for payments to Micro and Small Enterprises.
• Ageing: MSME ageing should be monitored based on the applicable statutory due date, not merely the invoice date.
• Records: Maintain invoice-wise calculations and supporting documents for audit, tax and legal purposes.
• Year-End: Complete MSME payable reconciliation, interest calculation and applicable disclosure/tax review before finalisation of accounts.
• Legal Review: MSEFC proceedings, limitation issues, disputes and challenges to awards/orders should be reviewed by appropriate legal professionals.