Industry estimates place nearly ₹8.1 lakh crore in MSME payments as delayed, stressing the scale of liquidity locked in the system despite regulatory timelines mandating settlement within 45 days under the MSMED Act.

Why delayed payments remain a structural constraint

Experts indicate that delayed payments remain one of the most binding constraints for MSMEs, particularly micro and first-generation entrepreneurs.

According to Lakshmi Venkataraman Venkatesan, Founding and Managing Trustee, BYST (Bharatiya Yuva Shakti Trust ), delayed receivables directly affect core operations such as payroll, raw material procurement, and inventory management.

She noted that MSMEs often operate with limited financial buffers and are therefore disproportionately impacted when payment cycles extend beyond agreed timelines.

From a fintech and credit perspective, Arun Poojari, CEO & Co-Founder, Cashinvoice, said a large portion of MSME working capital can remain tied up in unpaid invoices, creating a chain reaction across supply chains.

He highlighted that smaller firms often compensate by delaying payments to their own vendors or relying on informal borrowing, which further tightens margins and weakens financial stability.

How payment cycles translate into broader supply chain stress

Industry participants note that delayed payments are not isolated events but part of a cascading working capital structure.

As Dinesh Gulati, COO, IndiaMART InterMESH Limited, explained, stretched receivable cycles create a mismatch between inflows and outflows, forcing MSMEs to manage taxes, salaries, and supplier payments even before revenues are realised.

He also pointed to a broader structural issue: limited access to formal credit, estimated by industry studies at low penetration levels, combined with a wide MSME credit gap that continues to be addressed through policy and digital interventions.

According to him, this gap is being bridged through digital commerce platforms that improve buyer access, transaction efficiency, and operational visibility for small businesses.

How credit access remains uneven despite formalisation

From the banking sector perspective, Umesh Arora, Head of Emerging Business, Ujjivan Small Finance Bank, said MSME credit performance remains stable, but access challenges persist due to uneven documentation, variable cash flows, and limited financial buffers among smaller enterprises.

He added that traditional lending models often struggle to accurately assess MSME repayment capacity during uncertain periods, leading to cautious underwriting and slower approvals.

However, he noted a gradual shift toward cash-flow-based lending, supported by GST data, digital transaction trails, and account aggregator frameworks, which are improving visibility of real-time business performance.

How the system is responding through invoice-based financing

On the receivables financing side, Ketan Gaikwad, MD & CEO, RXIL (Receivables Exchange of India Ltd), said delayed payments remain a core working capital bottleneck, particularly for MSMEs with thin liquidity buffers.

He noted that many firms are forced to either dip into reserves or rely on high-cost credit when receivables are delayed.

He highlighted the role of the Trade Receivables Discounting System (TReDS) in addressing this gap by enabling invoice-based financing backed by buyer credit strength, allowing MSMEs to convert approved invoices into early liquidity through a regulated digital platform.

He added that recent policy measures, including proposals under Union Budget 2026–27, such as mandatory CPSE onboarding on TReDS, credit guarantee support via CGTMSE, and integration with government procurement systems, are aimed at deepening formal receivables financing and improving payment discipline.

Solution and outlook

The outlook suggests that MSME liquidity conditions will depend on how effectively structural reforms translate into execution on the ground rather than the introduction of new policy measures alone.

Experts indicate that strengthening payment discipline under existing frameworks, wider adoption of invoice-based financing through platforms like TReDS, and faster integration of digital credit assessment tools could gradually ease working capital pressures.

However, they also note that the real impact will hinge on scale of participation by corporates, financiers, and MSMEs, alongside consistent enforcement of payment timelines to ensure that receivables convert into predictable and timely liquidity.

Online Coverage: CNBC TV18