Credit and finance for MSMEs: Ahead of the upcoming union budget 2023, small business experts have suggested measures for the government to address the delayed payment issue faced by MSMEs in the country. While the government had acted on it in the past, uncleared payments have remained a perennial issue for small businesses. In 2022, 31,192 complaints involving Rs 7,128 crore were registered by micro and small enterprises against central public sector units and departments, of which only 1,056 applications involving dues worth Rs 71 crore were disposed by the dispute settlement units called facilitation councils.
According to the micro and small enterprise representative body Laghu Udyog Bharati (LUB), levying strict monetary penalties can be looked at in the upcoming budget by the government to push buyers for on-time payments.
“The government can levy a heavy per day fine of few thousand after the 45-day payment period that may aggregate into lakhs of rupees. This will hurt buyers and might force them to pay on time. Unless there is a severe punitive action like this, which impacts their businesses, buyers won’t pay MSME dues on time, as we have experienced over time,” Ghanshyam Ojha, National General Secretary, LUB told FE Aspire.
“Punitive action can be levying a heavy interest penalty over and above what the MSME Development Act, 2006 says against buyers in case they fail to make payments within the 45-day period,” Manguirish Pai Raiker, Chair, Assocham Goa Council told FE Aspire.
According to section 16 of the act, the buyer is liable to pay compound interest with the monthly rests to the supplier on the amount at three times the bank rate notified by RBI in case he/she fails to pay the supplier within 45 days of the acceptance of the goods.
Rest is the time frame at which the principal amount is reduced as one repays his/her loan. In case of monthly rest interest, it recalculates the reduced principal after each monthly EMI, and then applies the interest rate on the reduced principal. In other words, interest is calculated based on the outstanding balance from the previous month.
To recover dues, the act contains provision for MSMEs to file delayed payment applications with facilitation councils of their respective states. In turn, councils issue directions to buyers for payment along with compound interest. “Even facilitation councils are not very prompt today. Clearing cases within time should be linked to the performance of the person responsible for it at the council,” said Raiker.
Currently, every case submitted to a council has to be closed within a period of 90 days from the date of receiving it. The provisions under the MSME Development Act, which are implemented by the facilitation councils, are chaired by the Director of Industries of the respective state or union territory.
“Goods received note (GRN), which is raised to acknowledge that the goods are delivered to him, is deliberately delayed by the buyer to delay the payment. Once the GRN is raised, the goods go for a quality check (QC) which is also delayed by the buyer. So, the execution of laws is a big problem. In fact, not all CPSEs are all invoice discounting platform for MSMEs TReDS,” Rajan Raje, Chair, MSME Forum, Bombay Chamber of Commerce & Industry told FE Aspire.
Out of 4714 companies with turnover of more than Rs 500 crore identified by the Corporate Affairs Ministry in April 2021 to onboard TReDS, only 1,673 companies have registered themselves on the TReDS as of December 1, 2022, according to the dashboard data of the MSME Ministry.