INDIA'S SMALL BUSINESS TRAP

 

BIZ MASALA  |  INVESTIGATES

Orders Are Coming. Where Is the Cash?

By Murthy ASR  |  Biz Masala Investigates

HERO IMAGE | Illustrative editorial image of Indian manufacturing; not a photograph of a specific company.

A small factory can have confirmed orders, machines running and customers waiting for delivery—and still face a cash crisis. The reason may be brutally simple: it has paid for materials and wages, delivered the goods, issued the invoice, and is still waiting to be paid.

For many micro and small enterprises, the gap between delivery and payment is not just an accounting inconvenience. It can determine whether they can buy the next batch of raw material, pay workers on time, service a loan or accept another order. This is the working-capital problem behind India's manufacturing ambitions.

A large formal complaint trail—and only part of the picture

The Ministry of Micro, Small and Medium Enterprises' Annual Report 2025–26 says that, from the launch of the Samadhaan portal through 31 December 2025, micro and small enterprises had filed 2,56,892 delayed-payment applications involving ₹55,244.31 crore. The report records 24,238 mutual settlements involving ₹3,018.37 crore, 53,911 cases disposed of by MSE Facilitation Councils involving ₹14,638.38 crore, and 52,744 applications awaiting review involving ₹8,397.25 crore.

These are different procedural categories, not numbers that should be added together. Nor do they represent every late invoice in India: they describe claims filed through a formal mechanism. Businesses may negotiate privately, absorb delays, borrow to bridge the gap or never file a complaint.

CHART 1 | Ministry of MSME cumulative portal figures through 31 December 2025. Counts represent different categories and are not additive.

Reported measure	Figure	What it does—and does not—tell us
Applications filed	2,56,892	Claims registered on the portal; not all late invoices nationwide
Amount involved in applications	₹55,244.31 crore	Claimed amount, not necessarily finally adjudicated or recovered
Mutual settlements	24,238 applications; ₹3,018.37 crore	Settlements recorded in this category
MSEFC cases disposed	53,911 cases; ₹14,638.38 crore	Cases disposed; not automatically cash collected by suppliers
Awaiting MSEFC review	52,744 applications; ₹8,397.25 crore	Backlog reported at the stated cut-off date

TABLE 1 | Source: Ministry of MSME Annual Report 2025–26, delayed-payment section.

The law gives suppliers a clock. Does cash arrive on time?

IMAGE 2 | Illustrative invoice-and-cash-flow visual.

Sections 15–24 of the Micro, Small and Medium Enterprises Development Act, 2006 provide a framework for delayed payments to eligible micro and small enterprises. The agreed payment period cannot exceed 45 days from acceptance or deemed acceptance. Where payment is late, the Act provides for compound interest with monthly rests at three times the RBI bank rate, subject to the statutory provisions.

But a legal entitlement and money in the bank are not the same thing. A supplier may have to assemble purchase orders, delivery records, acceptance documents, invoices and correspondence, then pursue conciliation or adjudication. For a small business with limited cash reserves, the time and effort involved can itself be costly.

The rules also have boundaries: the statutory delayed-payment mechanism applies to eligible micro and small enterprises, not automatically to every business described broadly as an MSME. Registration, activity classification, transaction facts and applicable law matter.

The chain reaction: one delayed invoice can travel

IMAGE 3 | Illustrative manufacturing supply-chain scene.

A large buyer's delayed payment can become a supplier's borrowing requirement. If the supplier uses an overdraft or other short-term credit, interest eats into the margin on the order. If credit is unavailable or already fully used, the supplier may postpone wages, delay payments to its own vendors, reduce production or decline fresh work.

That chain is not inevitable in every case, and a late payment may arise from a genuine quality dispute or incomplete documentation. The investigation must distinguish disputed invoices from accepted, overdue dues—and ordinary commercial disagreements from repeated payment practices that shift financing costs onto smaller suppliers.

Can invoice financing bridge the gap?

Trade Receivables Discounting System (TReDS) platforms allow eligible MSME receivables to be financed by financiers after the receivable is accepted through the platform. The mechanism can turn an approved invoice into earlier cash, with the cost depending on the transaction and financier.

Yet financing is not the same as timely payment. A supplier may still face eligibility, onboarding, buyer-acceptance or pricing barriers. If a buyer does not accept an invoice promptly, or a small supplier lacks bargaining power, a digital platform cannot by itself resolve the underlying dispute or payment culture.

What to test	Evidence that would answer it
Buyer behaviour	Invoice date, acceptance date, contractual due date and actual payment date
Cost to supplier	Discounting fee, borrowing rate, penalties and margin on the order
Dispute or delay?	Quality records, rejection notes, purchase-order terms and email trail
Public procurement	Work-completion certificate, bill submission, treasury status and payment date
Remedy effectiveness	Filing date, MSEFC milestones, settlement/award and proof of payment

TABLE 2 | A practical evidence checklist for a case-based investigation.

The missing ledger: invoices, not announcements

The strongest next step is to build a small, document-led sample of supplier experiences across sectors—such as engineering components, packaging, food processing and construction supply. Each case should be tested against invoices, delivery or acceptance evidence, payment dates, financing costs and any formal complaint. Businesses and buyers should be offered a fair opportunity to respond.

The official portal's numbers reveal the scale of claims brought into the system, but they do not alone tell us which industries experience the longest delays, which buyer categories account for the largest overdue balances, or how much money suppliers ultimately collect. Those questions require disaggregated data and transaction-level evidence.

The Biz Masala verdict

A purchase order is not cash. A delivered product is not cash. Even an accepted invoice is not cash until it is paid—or financed on terms the supplier can afford.

India's manufacturing ambitions depend not only on factories, incentives and new orders, but also on the financial plumbing connecting buyers to the smaller firms that supply them. The policy test is whether payment rules, dispute resolution and invoice financing work quickly enough for viable businesses to keep producing.

The next phase of this investigation will follow the paper trail: from invoice to acceptance, due date, financing cost, dispute process and final receipt. Only then can we distinguish a system-wide problem from individual disputes—and establish who is effectively financing whom.

Sources and editorial note

Ministry of MSME, Annual Report 2025–26, section on MSME Samadhaan and delayed payments (portal data through 31 December 2025): https://msme.gov.in/sites/default/files/MSMEANNUALREPORT2025-26ENGLISH_0.pdf

Ministry of MSME, Samadhaan dashboard: https://www.dashboard.msme.gov.in/msme_samadhaan.aspx

Government of India, National Government Services Portal, MSME Samadhaan: https://services.india.gov.in/service/detail/msme-samadhaan-delayed-payment-monitoring-system

MSME RAMP, delayed-payment framework and MSEFC guidance: https://ramp.msme.gov.in/ramp/pdf-documents/scheme-guidelines/msefc.pdf

Editorial note: Portal statistics describe claims and procedural outcomes as reported by the Ministry, not a census of all delayed invoices or proof that every amount was recovered. Images are illustrative editorial artwork, not photographs of identified firms. This feature does not accuse any named buyer or supplier of wrongdoing.

 

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