Payment Terms in Indian Contracts: Clauses That Actually Get You Paid

Write the date down

Under Section 15 of the MSMED Act, where buyer and supplier have agreed a payment date in writing, that date governs, subject to a ceiling of forty-five days from acceptance. Where there is no written agreement, the limit is fifteen days.

For a buyer, that makes a written payment term worth thirty days of working capital. For a supplier, it makes the absence of one worth a much shorter clock. Both sides benefit from clarity; neither benefits from silence.

Define the trigger, not just the number

Net 30 from what? Invoice date, delivery, acceptance and month-end all produce different dates. The MSMED clock runs from acceptance or deemed acceptance, so a contract that runs from invoice date can diverge from the statutory position.

Specify the event, and specify what acceptance means — a signed goods receipt, a written sign-off, or deemed acceptance if no objection is raised within a stated number of days.

Six clauses worth having

• Payment date and trigger event, stated unambiguously.
• Deemed acceptance after a fixed period without written objection, which prevents indefinite silence.
• Interest on late payment, at a stated rate, without prejudice to statutory interest.
• A right to suspend further supply on non-payment, exercisable on notice.
• No set-off without written agreement, which prevents unilateral deductions.
• Which documents constitute a valid invoice — PO reference, entity name, GSTIN — so that queries cannot be invented.

Suspension beats termination

Termination is a nuclear option that often hurts the supplier more than the buyer, particularly where the supplier has work in progress. A right to suspend performance on notice until payment is received is easier to exercise, easier to reverse, and more immediately painful to a buyer who needs continuity.

Draft it with a short cure period and a clear notice mechanism, and it becomes usable rather than theoretical.

Frequently asked questions

### Can I agree payment terms longer than 45 days with an MSME?

No, not effectively. The proviso to Section 15 caps the agreed period at forty-five days from acceptance. A clause specifying sixty or ninety days is void to the extent it exceeds forty-five, and the statutory interest runs from the forty-sixth day regardless.

### Is an interest clause necessary if statutory interest applies?

It is still worth having. Statutory interest under Section 16 applies only where the supplier is a registered micro or small enterprise. A contractual clause covers every other case and makes the entitlement visible to the buyer's finance team.

### What does deemed acceptance do?

It stops a buyer from delaying the payment clock by simply not confirming receipt. If no written objection is raised within the stated period, acceptance is deemed and the payment period begins. The MSMED Act itself uses a fifteen-day deemed acceptance rule.