India’s Payment Delays Are Killing MSMEs. And Big Companies Are Getting Away With It.

Here is something most business news will not say directly: India’s large corporations are systematically using small suppliers as free sources of working capital. And the government, despite passing good laws, has not yet stopped it.

The numbers are clear. The Economic Survey in January 2026 confirmed ₹8.1 lakh crore locked in delayed payments to MSMEs. Payment cycles that should be 30-45 days are regularly stretching to 90-120 days. In some export sectors, with shipping disruptions in 2025-26, they have gone beyond that.

What this means for a small business is straightforward. You produce goods. You deliver them. You issue an invoice. Then you wait — three months, sometimes four — while your bank account runs dry. You borrow to pay salaries. You borrow to buy the next batch of raw materials. You pay 18-24% annual interest on that borrowed money. Meanwhile, the large company sitting on your unpaid invoice is earning interest on those funds or using them elsewhere.

You are, without knowing it, financing their business.

Why Section 43B Alone Is Not Enough

The government brought in Section 43B(h) of the Income Tax Act from April 2024, which says companies cannot claim a tax deduction on purchases from registered MSMEs if payment crosses 45 days. In theory, this makes late payment more expensive for buyers.

In practice? Many large companies simply stopped placing orders with registered MSMEs. They shifted to unregistered suppliers, who have no legal protection under the MSMED Act. So the law pushed some business underground rather than making buyers more responsible.

This is not a failure of intent. It is a failure of enforcement and design. A law that protects only registered MSMEs creates an incentive to deal with unregistered ones.

What Needs to Change

Three things would actually fix this:

First, the TReDS platform — where MSMEs can sell their invoices to financiers and get paid quickly — needs to become mandatory for more categories of large buyers. Currently, only companies with ₹500 crore+ turnover must be on TReDS. That threshold should drop significantly.

Second, enforcement of the MSME ODR portal needs teeth. Right now, a buyer can drag out conciliation and arbitration for months. Courts must prioritize MSME payment cases, not treat them like routine commercial disputes.

Third, the Samadhaan portal and the new ODR system need to be made accessible to people who are not digitally fluent. Most MSME owners in Tier 2 and Tier 3 towns do not know these portals exist, let alone how to file a case on them.

The Bottom Line

Delayed payments are not just a cash flow problem. They are the single biggest reason small businesses in India stay small. When your money is locked for 90 days, you cannot take new orders, invest in equipment, or hire more people. You are permanently stuck managing the last crisis instead of building the next opportunity.

The government has the right diagnosis. The laws are mostly right. What is missing is the will to actually enforce them against buyers who have deep pockets and political connections.

Until that happens, MSME owners need to protect themselves — through TReDS, through the ODR portal, and through the simple discipline of not doing large business with buyers who have a history of late payments, no matter how tempting the order size looks.