If you are a Udyam-registered micro or small enterprise, you are entitled by law to compound interest at three times the RBI bank rate, monthly rests, from the day after the due date (at most day 46 from acceptance) until payment, and the buyer cannot contract out of it. If you are not registered, you are entitled to interest at the rate stated in your invoice or contract, and otherwise to reasonable interest as a court awards. Claim it in writing with a computation; file MSME Samadhaan for the interest alone if the principal has been paid.
Three kinds of interest entitlement
| Basis | Who | Rate | From when |
|---|---|---|---|
| Statutory (MSMED Act) | Udyam-registered micro and small enterprises | Three times the RBI bank rate, compounded monthly | Day after the agreed date, or day 46 from acceptance, whichever is earlier |
| Contractual | Anyone with an interest clause in the contract, PO or invoice | As stated | From the due date in the contract |
| Court-awarded | Anyone suing for a debt | As the court finds reasonable | Usually from the due date or from the suit |
The statutory right is the strongest: the buyer cannot waive it by contract, and the Council awards it routinely. Use the MSME interest calculator or the late payment interest calculator to compute what you are owed.
Why buyers refuse, and why it does not hold
- “Our PO says no interest.” For MSMEs, s.16 applies notwithstanding any agreement; the clause is void against you.
- “Nobody charges interest in our trade.” Trade practice does not override statute.
- “You accepted the principal without protest.” Accepting the principal does not waive interest; s.17 makes the buyer liable for both, and a reference for interest alone is permitted.
- “It is a small amount.” Compound interest at three times the bank rate over several months is not small; show the computation.
Claim it properly
- Compute the interest invoice by invoice: due date, payment date, days, rate, compounding
- Send a written claim with the computation and a 15-day deadline
- If refused or ignored, FundRaksha’s advocate sends a legal notice within 24 hours
- File MSME Samadhaan for the interest; the Council hears interest-only references, and the buyer must deposit 75% of any award to appeal
India's No.1 B2B payment recovery company, trusted by 1,000+ businesses. Interest claims are often combined with the next unpaid invoices from the same buyer. See MSME Samadhaan filing.
Should you claim interest from a buyer you want to keep?
That is a commercial decision, and there is a middle path: send the computation and offer to waive the interest if the buyer moves to paying within terms from now, with the waiver lapsing if the next invoice is late. The buyer learns that delay has a price. Buyers who refuse both the interest and the terms are telling you how they value the relationship. See large company not paying small supplier and PSU payment delayed, where interest is often the main claim.
Make interest routine
Print the interest clause and your Udyam number on every invoice. Send an interest statement with each monthly account. Raise a separate interest debit note when a payment arrives late. The habit changes buyer behaviour more than any single claim. For interest already owed, book a free consultation and FundRaksha will compute and claim it.
Last reviewed: 2026-10-08. Information for Indian businesses; not legal advice.