How to Recover a Delayed Payment

Most overdue invoices are recovered without formal proceedings. The value of knowing the formal route is that it changes the conversation well before you have to use it.

Before anything else, remove the excuses

A significant share of late payment is process failure rather than refusal. Before treating an invoice as disputed, confirm that the basics are in order.

• The invoice reached the right entity, with the correct purchase order reference.
• Goods receipt or service acceptance has been recorded at the buyer's end.
• Your GST filings and the buyer's records agree on the invoice.
• Bank details on the invoice match those the buyer has on file.

Where an invoice is genuinely stuck, it is normally stuck at one of these four points, and resolving it costs nothing.

Establish the statutory clock

If you are registered on Udyam as a micro or small enterprise, the Micro, Small and Medium Enterprises Development Act, 2006 gives you a position that a general commercial creditor does not have.

• Section 15 sets the payment date: the agreed date, or 15 days from acceptance where nothing is agreed in writing, and never more than 45 days.
• Section 16 makes the buyer liable for compound interest with monthly rests at three times the RBI bank rate, running from the appointed day. This liability arises by operation of law, whether or not your contract mentions it.

Stating the position in writing, with the date interest began to run, is often enough on its own. It moves the invoice from a collections queue to a finance team's risk register.

Section 43B(h) gives the buyer its own reason to pay

Since the 2024-25 financial year, a buyer that pays a registered micro or small supplier outside the Section 15 period cannot claim that expense as a deduction in the year it was incurred. The deduction is deferred to the year of actual payment.

This is worth raising politely and early, particularly as a financial year end approaches. It is frequently the buyer's own tax team, not its procurement team, that releases the payment.

MSME Samadhaan and the Facilitation Council

Where the informal route is exhausted, a registered micro or small enterprise can file an application on the MSME Samadhaan portal at samadhaan.msme.gov.in. The reference goes to the Micro and Small Enterprises Facilitation Council for the relevant state.

The process under Section 18 runs in two stages:

• Conciliation. The Council attempts conciliation itself, or refers it to an alternative dispute resolution provider. Sections 65 to 81 of the Arbitration and Conciliation Act, 1996 apply.
• Arbitration. If conciliation fails, the matter proceeds to arbitration, with the Council acting as arbitrator or referring it onward.

Section 18(5) provides that a reference should be decided within 90 days. In practice this varies considerably between state councils. An award carries the status of a decree of a civil court and is enforceable under Section 36 of the Arbitration and Conciliation Act, 1996.

Structural options

Recovery addresses one invoice. If late settlement is a pattern rather than an exception, the answer is structural.

• TReDS. The Trade Receivables Discounting System lets a registered MSME have invoices on approved corporate buyers financed competitively. The platforms operating in India are RXIL, M1xchange and Invoicemart.
• Receivables finance. A facility against invoices already raised converts the wait into working capital, so growth is not gated on when your buyers happen to settle.
• Credit discipline at onboarding. Checking a counterparty's settlement record before extending terms prevents more losses than any recovery process resolves.

General information only, not legal, tax or financial advice. Statutory references were current at the time of writing and may change. Take professional advice on your specific circumstances before initiating proceedings.