New MSME Payment Rule, implemented under the 2024-25 assessment year, mandates buyers to clear dues to MSMEs within 45 days of delivery, and has caused a ripple effect through the business landscape. While the intent of timely payments for struggling MSMEs is noble, the abrupt implementation and lack of clarity seem to be creating unintended consequences like many cancelled orders in the wake of the new MSME Payment Rule.
Understanding the Rule:
The new rule stipulates strict timelines for buyer payments: 45 days for goods and 60 days for services. Any delay incurs a compounded interest penalty, significantly increasing the cost of delayed payments for buyers. Additionally, outstanding dues after March 31st are deemed income for the buyer, potentially pushing some into higher tax brackets.
Industry Concerns:
The rule, while well-meaning, has sparked several concerns. Firstly, the short notice and lack of transition period have caught many businesses unprepared. Large companies, used to longer credit cycles, are scrambling to adjust their internal processes, leading to order cancellations and delayed payments. Secondly, the hefty penalties add further pressure on buyers, especially startups and those facing cash flow challenges.
Beyond Headlines:
Some sectors, like FMCG and pharmaceuticals, with established supply chains and strong buyer-seller relationships, are adapting quicker than others. Additionally, the rule could incentivize more prompt payments in the long run, fostering a healthier business environment for MSMEs.
Recommendations for a Balanced Approach:
To achieve the true goals of the rule, while minimizing disruptions, some suggestions emerge:
Phased Implementation: A gradual roll-out with clear communication and ample time for businesses to adjust would have ensured smoother transitions.
Targeted Penalties: Instead of a blanket penalty, a tiered system based on buyer size and past payment history could offer more flexibility and mitigate unintended consequences.
Dispute Resolution Mechanism: A quick and efficient mechanism for resolving payment disputes is crucial to prevent the rule from being misused or misinterpreted.
The Final Order:
The new MSME Payment Rule undeniably aims to address a chronic issue faced by small businesses. However, its effectiveness hinges on a balanced approach that prioritizes both timely payments for MSMEs and operational feasibility for buyers. Open communication, targeted implementation, and a focus on dispute resolution are crucial to ensure this well-intentioned rule doesn’t lead to unintended chaos in the marketplace.
By learning from the current challenges and working collaboratively, we can ensure that the new rule truly empowers MSMEs while maintaining a healthy and resilient business ecosystem for all.
©CS SHIKHA PUBBI
Practicing Company Secretary
Shikha Pubbi & Associates (SPCS),
Company Secretaries
Disclaimer: While the information presented in this article is based on factual sources, the interpretation and opinions expressed are solely those of the author.
