The MSME owner's guide to getting paid, funded and sold

Most small and medium businesses in India run on three constraints: customers pay late, credit is hard to get, and nobody has thought about what happens when the founder wants to step back.

All three are partly legal problems wearing operational clothes. There are rules that give you a hold over slow-paying customers, records that decide whether a bank says yes, and documents that determine what your business is worth when you sell it.

Most owners aren't using any of them, usually because nobody explained that they exist. Many of these businesses have run profitably for twenty years without any of this. The point here is not what you've been doing wrong. It's bargaining power you already have and aren't using.

01Part one: getting paid

Register properly, and understand what registration gives you

MSME stands for micro, small and medium enterprise. Registration happens through the government's Udyam portal. It's free, and it takes a few minutes with your PAN and Aadhaar.

The certificate itself doesn't get you paid. What it does is switch on a set of protections that only apply to registered enterprises. Without it, none of what follows is available to you.

Classification is based on investment in plant and machinery or equipment, and on turnover. The thresholds were revised with effect from 1 April 2025, so a business may now sit in a lower category than it did before. Update your registration when your numbers change, because your category determines what applies.

The 45-day rule is your strongest collection tool

Here's the part most owners don't know.

When a registered micro or small enterprise supplies goods or services, the buyer must pay within the period agreed in writing, and that period cannot exceed 45 days from acceptance of the goods or services. If there's no written agreement, the period is 15 days. Beyond that, the buyer owes compound interest, with monthly rests, at three times the bank rate notified by the Reserve Bank. This applies regardless of what your contract says, because you can't contract out of it.

Two limits to know. The protection covers micro and small suppliers, not medium ones. And it does not cover traders: a wholesaler or retailer can register on Udyam, but the delayed-payment rules do not apply to what they sell.

That's useful. But the part that actually changes behaviour is the tax consequence on the buyer's side.

Under section 43B(h) of the Income-tax Act, which has applied since the 2023-24 financial year, amounts owed to a registered micro or small enterprise beyond the statutory period are not deductible for the buyer until they're actually paid. Paying before the return is filed does not rescue it. The rule continues under the new Income-tax Act 2025, in force from 1 April 2026. So an unpaid invoice doesn't just sit there: it increases your customer's taxable profit for that year.

You're not chasing a favour. You're pointing out that their finance team has a problem at year end, and that paying you solves it.

This reframes the collection conversation entirely. In our experience a polite, factual note to the buyer's finance head referencing the disallowance moves money faster than six follow-ups to the procurement contact.

It also changes how you should think about the terms you grant in the first place. Every extra day you give is a cost, as payment terms are price works through.

Practical steps:

• State your Udyam registration number on every invoice and in your contracts. A buyer can't apply the rule if they don't know you're registered.
• Have written payment terms. Without them you're at 15 days, which sounds better but is harder to run a relationship on.
• Track ageing against the 45-day mark specifically, not just 30, 60 and 90-day buckets.
• Raise it in writing, factually, before year end, when it's most useful to them.

If they still don't pay: the Samadhaan route

There's a formal mechanism for delayed payment claims. You file through MSME Samadhaan, the Ministry's online portal, and the claim goes to the state's Micro and Small Enterprises Facilitation Council, which first tries to settle it and, failing that, arbitrates.

Two things owners get wrong about it. They assume it's as slow as court, when it's built to be faster than a civil suit. And they assume filing destroys the relationship. Sometimes it does, but the possibility of filing is itself pressure, and many claims settle once a buyer sees the reference is real.

Interest at the statutory rate is part of what's claimable, which often makes the exercise worthwhile on its own.

The other side of the rule

If you buy from registered micro and small enterprises, this runs against you. You owe them within 45 days, and the disallowance applies to your own tax computation.

If you're a company, you also file Form MSME-1, a half-yearly return to the Registrar of Companies, by 30 April for October to March and by 31 October for April to September. Since July 2024 it asks for the whole picture once any payment has crossed 45 days: what was paid on time, what was paid late, and what is still outstanding, with reasons. The monthly compliance calendar lists filing dates as they fall due.

Both sides of this belong on one tracker.

03Part three: getting out, or passing it on

What a buyer checks

Valuation is negotiated on the numbers and discounted on the records. What a buyer checks applies to established businesses as much as to startups, and the gaps in an MSME are usually different:

• Property and licences in the wrong name. Held personally by the owner or in a predecessor firm's name, never transferred to the operating entity.
• Informal employment. Long-serving staff without contracts, with provident fund and gratuity exposure nobody has quantified.
• Family loans in both directions, undocumented.
• Related-party dealings with entities the family also owns, at prices nobody can defend as market.
• Unfiled returns across the group, including the dormant ones.

Each is fixable with time and expensive without it.

The agreement between family members that was never written down

This is the one that causes the most damage.

Two brothers build a business over twenty years on an understanding about ownership, roles and what happens to the next generation. Nothing is in the Articles of Association, the shareholding doesn't reflect the understanding, and there's no mechanism for a disagreement.

Then someone dies, or wants out, or the children disagree. The understanding has no legal force. The share register does.

You don't need a dispute to fix this. You need the shareholding to reflect what people actually believe, transfer restrictions in the Articles so shares can't go outside the family unexpectedly, a valuation mechanism for an internal exit, and a written answer to what happens on death or incapacity.

It's an uncomfortable conversation and a short document. The alternative is a long dispute at the worst possible time.

05Frequently asked questions

What is the 45-day payment rule for MSMEs?

A buyer must pay a registered micro or small enterprise within the agreed period, which cannot exceed 45 days, or within 15 days where nothing is agreed in writing. Late payment carries compound interest at three times the RBI bank rate, the parties cannot contract out of it, and under section 43B(h) the buyer cannot deduct the amount for tax until it is paid.

What is MSME Samadhaan and how does it work?

It is the Ministry's online portal for micro and small enterprises to file delayed payment claims. The claim goes to a state facilitation council, which tries to settle it and then arbitrates if that fails, and statutory interest on the delayed amount is claimable.

Why do banks reject MSME loan applications on paperwork?

Lenders check the public record before the financials. The usual blockers are charges never satisfied after a loan was repaid, overdue annual filings, and directors disqualified because of an unrelated dormant company, and all three can be fixed before you apply.

If you want the receivables, the charges and the family paperwork looked at together, our work with MSMEs starts with the public record and your ageing.

Current as at September 2026. Thresholds, rates and timelines change. General guidance, not legal or tax advice: take advice on your specific situation.