How Udyam Registration Guards Your Business against Delayed Payments

India’s Micro, Small, and Medium Enterprises (MSME) industry is the backbone of India’s economy. Small businesses, however, have one big issue—delayed payments by their customers or big businesses. This issue not only affects their cash flow but also slows down their business growth.

This is why the government launched “Udyam Registration” to give such MSME owners legal and financial security.

In this article, we will clearly understand how Udyam Registration safeguards your business against the issue of delayed payments and its advantages.

What is Udyam Registration?

Udyam Registration is a government identification process initiated by the Government of India under the Ministry of MSME. This registration provides a recognized identity to any micro, small, or medium-sized business.

After successful registration, the business receives a Udyam Certificate, and the business can take advantage of different government schemes, loans, subsidies, and legal benefits.

Why does delayed payment become an issue?

MSME companies usually supply goods or services to bigger companies. But in return, these big companies usually don’t pay on time.

Since this is the case, small companies:

It is hard to pay their workers
Find it difficult to get new orders or projects
And even sometimes struggle to make ends meet.

This being the case, the government has made provisions for protection against delayed payments as a part of the MSME Development Act, 2006. These provisions are only given to Udyam-registered companies.

What is Udyam registration protection?

Legal Protection

A Udyam-registered MSME is legally entitled to receive payment within the time frame.

According to the law,

The buyer needs to pay within 45 days of getting goods or services from an MSME.
If the buyer does not pay on time, the MSME can ask for payment along with interest.

Right to Payment with Interest

In case of delay in payment, the buyer needs to pay with “Compound Interest.”

This interest is thrice the rate fixed by the Reserve Bank of India (RBI).

This reimburses MSMEs for monetary losses and makes the purchasers responsible for making payments on time.

Right to File a Complaint with the MSME Facilitation Council

If a firm suffers a delay in payment upon registering an enterprise, it may complain to its state’s MSME Facilitation Council.

This council is a government entity formed to settle disputes and gives priority to MSME cases.

The process is extremely easy:

You can complain online with your Udyam Registration Number.
The Council serves a notice on the buyer.
There is a provision to settle the dispute within 90 days.

Speedy Settlement in Courts

MSME cases are settled by the Facilitation Council, not in ordinary courts, saving both time and money.

This system enables small businesses to enforce their rights even against big businesses.

Effect on Credit Scores

When a company delays payment to an MSME, it gets reflected in government records. This affects the company’s credit rating and credibility.

This system places pressure on big buyers to settle with MSMEs as soon as possible.

Other Advantages of Udyam Registration

In addition to late payment protection, Udyam registration provides several other advantages to businesses:

Access to government schemes – Priority in schemes like PMEGP, CGTMSE, etc.
Loans at lower interest rates – Banks offer loans to MSMEs without collateral.
Ease of tendering process – MSMEs receive special concessions for participating in government tenders.
Business promotion – Udyam certificate gives your business a credible identity.