New MSME Payment Rule Leads to Many Order Cancellations

Last updated: 30 January 2024

In a significant development for the assessment year 2024-25, the central government has implemented a new rule requiring buyers to settle payments for goods purchased from Micro, Small, and Medium Enterprises (MSMEs) within 45 days of delivery. Additionally, all outstanding dues to MSMEs must be cleared before March 31, 2024. Failing to meet these deadlines will result in the pending payment being deemed as income, subject to taxation.

While the government's intention behind this rule is to safeguard the interests of MSMEs, it has stirred uncertainty in the market. Notably, Ahmedabad's textile markets are witnessing a surge in order cancellations, and chemical traders are also experiencing the ripple effects of the new regulation. Some buyers are strategically deciding not to make any purchases before February 16 to ensure that their payment deadlines fall after March 31.

 

The textile value chain, known for operating on a credit period of up to 120 days, finds itself particularly affected by this rule. Industry experts are expressing concerns about the practicality of making payments within 45 days, given the established norm of a more extended credit period. The immediate aftermath has seen a wave of cancellations and a decline in new purchases, prompting some businesses to reconsider their approach to sourcing goods.

The former chairman of the Powerloom Development and Export Promotion Council (PDEXCIL) commented on the situation, stating, "The move intends to help MSME units, but the immediate reaction is totally different." He highlighted the prevalent credit period of 120 days in the textile business, making it challenging for businesses to adhere to the new payment timelines. Many traders have reportedly canceled recent orders, and some are refraining from buying goods from MSME manufacturers until at least February 16 to align payment deadlines with the next financial year.

Industry experts are calling for clarity on the issues arising from the new rule, emphasizing the need for a comprehensive discussion. Meetings of various associations are being planned to address the challenges posed by the stringent payment timelines.

A representative from the Gujarat Dyestuffs Manufacturers' Association (GDMA) shed light on the chemical industry's perspective, stating, "In the chemical industry, the credit period offered is about 60 days, but as demand is low, this period is often extended." With the implementation of the new rule, buyers are reportedly inquiring about the MSME registration status of sellers, reflecting the cautious approach adopted in the wake of the regulatory changes.

As businesses grapple with the immediate impact of the new rule, there is a growing consensus on the need for clear guidelines and potential adjustments to accommodate the diverse credit periods prevalent in different industries.



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