Effective Remedy against Non Payment of Invoices by Customer

An Overdue Customer

When you do business with a client, you expect to be paid for your product or services within stipulated time. But what happens when those payments are late - or don't come at all? Sometimes, no matter what you do to prevent the issue, even then you're still left empty-handed and you feels like being cheated. There are a few questions those come up often in our mind and we went looking for a definitive answer for those questions.

• What can I do if a customer doesn't pay me?
• Should I sue a customer for non-payment?
• How to get overdue payments from clients?
• How do I report a company for not paying?
• What to do when a client won't pay an invoice?

Vicious Circle of Liquidity Crunch

Non Payment/delayed payment is a major issue for many business houses these days and even critical for business enterprises which are dependent upon working capital facilities raised from Bank. In case of Cash Credit facility availed from banks/financial institutions, even Banks don't permit Drawing Power against Book Debts which are outstanding above sanctioned debtor realization period (mostly 90 Days) and similar overdue books debts. So neither you are getting payment from Customer nor Banks are funding these overdue debtors. Liquidity crunch and its vicious circle impact the business much deeply in today's cut throat competitive business environment.

Does suing a customer effective measure for Small Vendors?

First and foremost solution comes in our mind is to send legal notice to customer and file a suit against such non-payment. But does this really work? In case of Micro, Small & Mid-sized Business Enterprises, most of the times, there are no written agreements and/or poor documentation of business contracts. So they end up waiting for customer payments with a little hope of realization of over-dues. Further time gap between filing a suit and getting justice gets longer and longer…!!! Alternative to the filing of Civil Suit has been discussed in this article.

Protection available under The MSMED Act, 2006

The Micro, Small and Medium Enterprise Development (MSMED) Act, 2006 contains provisions of Delayed Payment to Micro and Small Enterprise (MSEs). As per section 16, the buyer is liable to pay compound interest with the monthly rests to the supplier on the amount at the three times of the bank rate notified by RBI in case he does not make payment to the supplier for his supplies of goods or services within 45 days of the acceptance of the goods/service rendered.

MSME Samadhaan Portal - 'Delayed Payment Monitoring System'

Ministry of MSME has taken an initiative for filing online application through website https://samadhaan.msme.gov.in by the supplier Micro & Small Enterprises (MSE) unit against the buyer of goods/services before the concerned Micro and Small Enterprise Facilitation Council (MSEFC) of his/her State/UT. These will be viewed by MSEFC Council for their actions. These will be also visible to Concerned Central Ministries, Departments, CPSEs, State Government, etc for pro-active actions. MSEFC of the State after examining the case filed by MSE unit will issue directions to the buyer unit for payment of due amount along with interest as per the provisions under the MSMED Act, 2006.

Salient Features of MSME Samadhaan Portal

a. Any Micro or small enterprise having valid Udyog Aadhar(UAM) can apply. One can easily apply Udyog Aadhar Memorandum (UAM) on the website https://udyogaadhaar.gov.in/UA/UAM_Registration.aspx

b. Process to Initiate application on https://samadhaan.msme.gov.in

1. Enter Your Udyog Aadhaar Number
2. Enter Your Mobile Number as in Udyog Aadhaar
3. Enter verification code as displayed
4. Click on Validate Udyog Aadhaar button to receive your OTP sent to the registered email ID in Udyog Aadhaar

c. Documents required for filing application:

1. Scanned PDF documents of work orders (Purchase Order) of Respondent
2. Invoices generated by you against those work orders.
3. Maximum three work orders and three invoices can be uploaded at a time.
4. In case purchase order is oral an affidavit to that effect is to be submitted

d. Legal notice by the supplier to buyer is not necessary before filling the case in the Council.

e. Claim can be filed for interest alone where the claimant has received principal of dues already

f. Receivables from buyer such as advance deposit, EMD, Statutory deposits as other than supply of goods and services can also be claimed in the claim before the Council

g. Every reference made to MSEFC shall be decided within a period of ninety days from the date of making such a reference as per provisions laid in the Act.

h. If the Appellant (not being the supplier) wants to file an appeal, no application for setting aside any decree or award by the MSEFC shall be entertained by any court unless the appellant (not being supplier) has deposited with it, the 75% of the award amount.

Thus, MSME Samadhaan Portal created by Office of DC(MSME), Ministry of Micro, Small and Medium Enterprises (MSME) where Micro and Small Enterprises (MSEs) can file their applications online regarding delayed payments. Frequently asked questions (FAQs) regarding MSME Samadhaan Portal are also available on the official Portal of government (https://samadhaan.msme.gov.in/MyMsme/MSEFC/FAQ.aspx)

Companies to Furnish Return to ROC for delayed Payment to Supplier

To ensure effective implementation of MSMED Act, 2006, the ministry of micro, small and medium enterprise issued the notification S.O. 5622(E) dated 2nd November 2018, wherein all the companies dealing with such enterprises were required to fill return to MCA stating the following details:

1. The Amount payments due; and
2. The reason of the delay.

With reference to the notification issued by MEMEDA-2006, Ministry of Corporate Affairs on 22nd day of January 2019 issued notification no. S.O. 368(E) under which Ministry of Corporate Affairs using the power define under section 405 of Companies Act, 2013 Central Government make order called as 'Specified Companies (Furnishing of information about payment to micro and small enterprise suppliers) Order, 2019”. Under this order every specified company is required to file MSME Form I.

MSME Form I

MSME Form I is the half yearly return to be filled by every specified company with the Registrar of companies. This return contains detail of all the outstanding payments to the micro and small vendors for the goods and services supplied by them. All the payments which are due from more than 45 days need to be reported under this return. All the companies will have to file MSME - I if following conditions are satisfied.

1. Who get supplies of goods or services from Micro and Small Enterprises and
2. Whose payments to Micro and Small Enterprises Suppliers exceed 45 days from the date of acceptance or the date of deemed acceptance of the goods or services

Suppliers can check their name included in MSME Form I through option available under 'View Public Documents' on link http://www.mca.gov.in/mcafoportal/viewPublicDocumentsFilter.do by paying a nominal Fees. In case of Non-reporting/false reporting by companies, the aggrieved Supplier can bring the same to the attention of ROC by providing satisfactory documents for suitable action against the company for incorrect furnishing of Returns. Address & Email IDs of Jurisdictional ROC are available on the website: http://www.mca.gov.in/MinistryV2/registrarofcompanies.html .

Thus, it can be concluded that steps are being taken by government to provide platform viz. 'MSME Samadhaan Portal' to Suppliers where they can approach in case of delayed/non-payment of dues by customers in a time-bound manner. By introducing MSME Form I, government has taken a bold step towards transparency and effective implementation of MSME Development Act.

It's recommended to all Professionals to popularize the benefits available for MSME Concerns & register their Clients to avail the same.

Please refer all the relevant section, rules, notifications, amendments as applicable. The Author is not responsible for any losses incurred. Content is merely for sharing knowledge.

The author can also be reached at casagargambhir@gmail.com