The MSME payment clock, and why your creditors list is now a tax matter
Late payment to small suppliers has always carried a statutory interest liability that almost nobody enforced. What changed is that the income tax treatment of the expense is now tied to whether you paid within the permitted period — which moves the issue from a supplier's grievance to your own tax computation.
2 min readOadbox
The clock and who it protects
The underlying legislation gives micro and small enterprises a maximum credit period — shorter where there is no written agreement, and capped even where an agreement provides for longer. Medium enterprises are treated differently.
Whether the protection applies depends on the supplier's registration status and category at the time of supply, which is information you have to collect rather than infer.
Know which of your suppliers are covered
Most businesses do not hold this information because it was never needed. Collecting it is a one-time exercise with an ongoing maintenance requirement, since a supplier's category can change.
- Capture registration number and enterprise category during vendor onboarding.
- Record it against the vendor master, not in a folder of certificates.
- Re-confirm periodically — annually is a reasonable cadence.
- Flag covered vendors in the payables ageing so the clock is visible.
Ageing has to be read differently now
A standard payables ageing groups by days outstanding. What you need additionally is a view of covered suppliers approaching their permitted period, sorted by the date the clock started rather than by amount.
That is a small reporting change with a direct effect on the year-end position, and it is best introduced before March rather than during it.
There is a periodic disclosure too
Separately from the tax treatment, companies are required to report amounts outstanding to these suppliers beyond the permitted period. The two obligations draw on the same underlying data, which is another argument for holding it properly in the vendor master.
The categories covered, the permitted periods and the disclosure requirements are specific and have been clarified more than once. Confirm the current position with your auditor before year end.
Written by the Oadbox team. Something here not match how it works in your business? We would genuinely like to hear it — connect@oadbox.com.