Clients paying late? The MSME 45 day rule and the interest you can claim

The short answer. If you are a micro or small enterprise registered on Udyam, an Indian business client must pay you within the period agreed in writing, and that period can never be more than 45 days from when they accept the work. With no written agreement, it is 15 days. Pay later and they owe compound interest at three times the RBI bank rate, which is 17.25% a year at the bank rate of 5.75% in force since 7 October 2026.

Who the rule protects

The protection comes from the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006. It covers suppliers of goods and services that are micro or small enterprises. Medium enterprises are not covered.

Since 1 April 2025 the limits are:

A business has to be within both limits. Almost every freelancer, studio and small agency is a micro enterprise.

To use the rule you need Udyam Registration. It is free, online and based on your PAN and Aadhaar, and sole proprietors offering services can register. Register before you do the work: the protection is meant for supplies made while you are registered.

The deadline: 45 days at most

Section 15 of the Act sets when the client must pay:

• With a written agreement: on the agreed date, but the agreed period can never exceed 45 days from the day the client accepts the work, or is treated as having accepted it.
• Without a written agreement: within 15 days of acceptance.

So "payment within 60 days" in a contract does not give the client 60 days. The law caps it at 45.

The interest: three times the bank rate, compounded monthly

If the client pays late, Section 16 makes them liable for compound interest with monthly rests at three times the bank rate notified by the RBI, from the day the payment fell due. The client cannot contract out of this.

The RBI raised the bank rate to 5.75% on 7 October 2026, so the rate is currently 17.25% a year. Before that, from December 2025, the bank rate was 5.50%, which gave 16.5%. The rate moves with RBI policy, so check it when you calculate.

Example. A client accepts ₹2,00,000 of work on 1 November 2026 with 30 day terms, so payment is due on 1 December. They pay on 11 March 2027, 100 days late. Three full months compounded at 17.25% come to ₹8,749.58, and the extra 10 days bring the interest to about ₹9,736. The late payment interest calculator works this out for any dates.

Why clients take it seriously: their income tax

The rule has a second, stronger lever. Under Section 43B(h) of the Income-tax Act, 1961, carried into the new Income-tax Act, 2025 as Section 37(2)(g), a business that owes money to a micro or small enterprise and does not pay within the MSMED deadline can deduct that expense only in the year it actually pays. For a client near the end of their financial year, paying you late can raise their tax bill.

This only matters to clients who are businesses claiming the expense, but that is most agency and freelance clients in India. Mentioning it politely in a reminder often works better than mentioning interest.

How to use the rule, step by step

1. Register on Udyam if you have not already, and keep the certificate handy.
2. Put it on your paperwork. Add your Udyam number and a payment term of 45 days or fewer to your proposals, contracts and invoices, for example: "Payment due within 30 days of acceptance. Late payments attract interest under Section 16 of the MSMED Act, 2006."
3. Record acceptance. Keep the email or message where the client approved the work. The clock starts from acceptance.
4. Send a clear reminder after the due date, with the invoice, the days late and the interest so far.
5. Escalate if needed. File a reference with your state's Micro and Small Enterprise Facilitation Council (MSEFC) through the MSME Samadhaan portal. The council is meant to decide within 90 days, and a client who challenges its award in court must first deposit 75% of the amount.

Most disputes never reach step 5. Clients who know you are registered, and who see the 45 day term on every invoice, tend to pay on time.

Clients outside India

The MSMED Act binds buyers in India. A foreign client is not covered, so for exports rely on your contract terms and advance payments. Export payments have their own deadline under the foreign exchange rules; see invoicing clients outside India.

Where sync.d fits

In sync.d you can put your payment terms and Udyam number in the invoice's Notes / Terms field, or in your default invoice notes so every invoice carries them. Invoices can include a PayPal, Wise or UPI pay link, and you can see at a glance which invoices are paid and which are still due.