An estimated Rs 8.1 lakh crore is locked in unpaid dues to micro, small and medium enterprises, according to industry estimates and government assessments.
The dues are invoiced but not settled within expected timelines, often stretching to 60 to 90 days or longer.
For MSMEs, this creates immediate cash flow pressure. A large share of working capital remains tied up in receivables, in some cases as high as 70 to 80%, limiting their ability to fund operations.
Businesses respond by delaying vendor payments, cutting orders or relying on short-term borrowing.
For many, that borrowing comes at a steep cost.
When payments are delayed by 60 to 90 days, businesses often turn to informal credit markets where interest rates can reach 3 to 5% a month, effectively wiping out margins, Arun Poojari, CEO and Co-Founder of Cashinvoice, told IndiaToday.in.
Long payment cycles are standard practice in large supply chains.
For bigger companies, extending payments helps manage working capital and reduces borrowing needs. For smaller suppliers, it creates a mismatch between cash inflows and outflows.
“Large companies effectively use MSME suppliers as a source of interest-free working capital,” Poojari said.
This shifts liquidity pressure down the supply chain, with smaller firms absorbing the impact.
In many cases, these terms are not negotiated.
“For MSMEs, it is take it or leave it,” Poojari said, pointing to limited bargaining power and dependence on large buyers.
The issue is widespread.
A report by the Global Alliance for Mass Entrepreneurship describes delayed payments as pervasive across sectors, affecting cash flows and production cycles.
The impact does not stop with one firm. Suppliers facing delays often default on their own vendor payments, creating a chain reaction across the supply chain, Poojari said.
The Economic Survey has flagged working capital constraints as a key challenge for MSMEs, linking them to limited capacity for expansion and investment.
Some estimates suggest delayed payments could be shaving off 1-2% of GDP growth by restricting liquidity at the base of the economy.
The risks become more visible during disruptions.
During the pandemic, payment cycles lengthened as companies conserved cash, leaving MSMEs with limited liquidity buffers. This led to supply disruptions and slower recovery in several sectors.
“Payment cycles are not just a commercial issue. They expose a vulnerability for the entire economy,” Poojari told IndiaToday.in.
Policy measures exist but gaps remain.
Payments to MSMEs are mandated within 45 days under the MSMED Act. Platforms such as TReDS allow invoice discounting to improve liquidity, and tax provisions have been introduced to encourage timely payments.
However, longer payment cycles remain common.
MSMEs often depend on a limited number of large buyers and have limited bargaining power. Legal remedies are available but are not widely used due to business risks.
Delayed payments, as a result, remain embedded in supply chains.
For MSMEs, cash realisation lags revenue generation.
“This is not just a working capital issue. It is a systemic drag on the economy,” Poojari said.
Delayed payments do not disappear. They shift.
For now, that burden sits with MSMEs. The risk is what happens when they can no longer absorb it.