Quick answer: No — not beyond 45 days. Even if the supplier signed it willingly, a payment term of 60, 90 or 120 days with a registered Micro or Small enterprise is enforceable only up to 45 days. Beyond that, the law treats the extra credit period as if it was never agreed, and interest starts running from day 46.

Why doesn’t a signed agreement settle the matter?

In most commercial matters it would. But Parliament recognised that small suppliers rarely negotiate from a position of strength — a large buyer can simply say “our standard terms are 90 days, take it or leave it,” and the supplier, needing the business, signs. To correct that imbalance, Section 15 of the MSMED Act puts a hard, non-negotiable ceiling of 45 days on payment to Micro and Small enterprises. It is one of the few places in Indian business law where the statute deliberately overrides the contract.

What exactly happens to a 90-day clause?

The clause is not illegal to write — the purchase order won’t be torn up. But it is ineffective beyond 45 days. From the supplier’s side, the practical position is: payment is legally due within 45 days of acceptance, interest at three times the RBI bank rate begins from day 46, and the tax consequence for the buyer under Section 43B(h) of the Income Tax Act is also triggered by the 45-day limit — not by the 90 days written in the contract.

In other words, a buyer following a 90-day term with an MSME supplier is late in the eyes of both the MSMED Act and the Income Tax Act, even though they are “on time” per the contract.

Does this mean I should refuse all 90-day purchase orders?

Not necessarily — that is a commercial decision. Many suppliers accept long-cycle POs from valuable clients and simply never enforce their rights. What matters is that you know the true legal position: you are not actually bound by the 90 days, the interest clock is running in your favour, and if the relationship ever breaks down, you can claim for the delay periods. Buyers who understand Section 43B(h) increasingly restructure their own payment cycles to 45 days for MSME vendors, because their tax deduction depends on it.

What should suppliers do practically?

Quote your Udyam Registration Number on every invoice — it puts the buyer on clear notice that MSME timelines apply. Keep delivery proof so the “date of acceptance” is provable. And if a buyer routinely stretches to 90 days, consider a polite, factual note pointing out the 45-day rule and the buyer’s own tax exposure — many payment cycles shorten remarkably fast after that conversation.

Frequently Asked Questions

Q. If I signed a 90-day agreement, have I waived my rights?

A. No. The statutory ceiling applies regardless of the agreement. You cannot contract out of this protection.

Q. Does the 45-day cap apply to Medium enterprises too?

A. No. The payment protection in Sections 15–16 covers Micro and Small enterprises only.

Q. Is the buyer breaking the law by using a 90-day term?

A. The consequence is financial rather than criminal: interest liability from day 46 and loss of the tax deduction until payment. That is usually pressure enough.

Q. What if the buyer is a government department or PSU?

A. The MSMED Act’s payment provisions apply to government buyers as well. The process of recovery is the same, though it may require more persistence.

About the author: Advocate Praveen Siinghhal is a Delhi-based lawyer with 25+ years of experience in MSME payment recovery, commercial disputes and business legal protection. He advises MSMEs and business owners on unpaid dues, legal notices, MSME Facilitation Council claims and recovery strategy.

Disclaimer: This article is for general information only and is not legal advice. Laws, RBI bank rate, tax treatment, portal procedures and case law may change from time to time. Please verify the current position or consult a professional before acting on any specific claim.