Introduction
Micro, Small, and Medium Enterprises (MSMEs) are the backbone of India’s economic engine, contributing nearly 30% to the GDP and employing over 11 crore people. However, one issue continues to slow down their growth: delayed payments.
A recent study published by GAME (Global Alliance for Mass Entrepreneurship) and FISME (Federation of Indian Micro and Small & Medium Enterprises) reveals that while delayed payments have declined over the last two years, the problem still poses a serious challenge to MSME liquidity and long-term sustainability.
This blog breaks down the report’s findings, what improved, what still needs urgent attention, and what the government and industries can do next.
The Good News: Delayed Payments Show Noticeable Decline
The GAME–FISME report indicates that the payment cycle for MSMEs is gradually improving. A combination of factors—formalisation, digital invoicing, GST systems, and rising buyer awareness—have contributed to better payment discipline.
Key Highlights:
- A 5–12% improvement in payment timelines across multiple sectors.
- Faster processing for MSMEs supplying to large corporates and government PSUs.
- Growing use of digital payment systems and trade receivable platforms like TReDS.
- Reduction in disputes related to billing and invoice verification.
This improvement is reason for optimism, especially for businesses that heavily rely on predictable cash flow.
But the Hurdles Are Still Significant
Despite progress, delayed payments remain one of the top three constraints faced by Indian MSMEs.
Persistent Challenges Highlighted in the Report:
1. Long Payment Cycles Still Common
Even though delays declined, the average payment period still ranges between:
- 45–90 days for private sector buyers
- 90–180 days for government and PSU buyers
This is far beyond the 45-day limit mandated under the MSME Development Act.
2. Power Imbalance Between MSMEs & Buyers
Small enterprises hesitate to demand timely payments due to fear of:
- Losing future orders
- Getting blacklisted
- Damaging long-standing relationships
3. Low Adoption of Formal Recourse Mechanisms
Mechanisms like:
- Micro & Small Enterprises Facilitation Councils (MSEFCs)
- TReDS discounting platforms
- Udyam-registered protections
are still underused due to lack of awareness and bureaucratic complexity.
4. Supply Chain Pressure
MSMEs in manufacturing, logistics, textiles, and packaging face severe working capital shortages due to:
- Raw material cost hikes
- Shorter credit terms from suppliers
- Longer credit terms demanded by buyers
Why This Matters: Impact on MSMEs
Delayed payments lead to a domino effect that weakens the entire MSME ecosystem.
1. Cash Flow Crunch
Working capital shortages limit the ability to:
- Buy raw materials
- Pay staff on time
- Invest in productivity tools
2. Increased Borrowing
MSMEs often rely on:
- Costly informal loans
- High-interest credit
- Overdrafts
This reduces profitability and increases financial risk.
3. Slow Business Growth
Innovation, expansion, and exports suffer when funds remain stuck in receivables.
4. Job Creation Declines
MSMEs struggling with liquidity hesitate to hire or upskill their workforce.
Government Efforts: Steps Taken, More Needed
The Indian government has introduced various measures to support MSMEs:
✔ Mandatory 45-day payment rule under MSMED Act
✔ TReDS platform for invoice discounting
✔ Delayed Payment Monitoring Portal (Samadhaan)
✔ GST digital trail improving invoice traceability
✔ Udyam registration for legal protections
However, enforcement remains weak due to low adoption, limited monitoring, and lack of strict penalties for large buyers.
What Needs to Happen Next: Recommendations from the Report
1. Stricter Enforcement of the 45-Day Rule
Introduce:
- Mandatory reporting of payment delays
- Penalties for chronic defaulters
2. Mandatory TReDS Registration for Large Buyers
Encourage fair digital invoice financing.
3. Fast-Track MSEFC Cases
Many cases take 2–4 years for resolution—these must be reduced to 90–120 days.
4. Awareness Drives for MSMEs
Simplify knowledge sharing about:
- Legal rights
- Digital tools
- Escalation mechanisms
5. Transparent Payment Scorecards
Public payment performance ratings for major corporates and PSUs will push timely payments through accountability.
Conclusion
The GAME–FISME report shows progress—but also reminds us that India’s MSME sector is still fighting an uphill battle on delayed payments. While improvements in digital adoption, formalisation, and buyer responsibilities are encouraging, real transformation will require stricter enforcement, easier dispute resolution, and widespread awareness.
For India to achieve its MSME-driven economic vision, timely payments must become the norm—not the exception.
