India's MSME sector is owed ₹10,800 crore in delayed payments at any given time. Most of it is trade credit that turned into bad debt.
The three trade credit mistakes MSMEs make:
1. No written credit agreement Verbal terms are unenforceable. Always issue a Pro Forma Invoice with explicit payment terms before dispatching. A simple PDF signed via WhatsApp is better than nothing.
2. Not knowing the MSME Payment Protection Act If you're a registered MSME (Udyam registration), Section 15–17 of the MSMED Act mandates payment within 45 days (or as agreed, max 45 days). Delayed payment attracts 3× RBI bank rate compound interest. You can file at MSME Samadhaan (samadhaan.msme.gov.in) — 97% of cases are resolved in 90 days.
Get Finance Supplier Quotes
Post your Requirement free — verified suppliers respond with competitive quotes within 24 hours. Every deal is covered by Protected Payment (escrow).
3. Extending unlimited credit to new buyers The first order from a new buyer should always be advance payment or Protected Payment (escrow). Once they've completed 2–3 transactions reliably, you can consider 30-day credit.
How to check buyer creditworthiness: - Verify their GSTIN and check filing history at gstn.in (regularly filed = financially active) - Request Udyam certificate to confirm they're a registered business - Check for MCA filings if they're a Pvt Ltd or LLP (mca.gov.in) - Ask for a trade reference from a supplier they've previously paid on time
How VyaparSethu's Trade Confidence Score helps: Every buyer on VyaparSethu has a Trade Confidence Score (0–100) computed from their payment history, dispute rate, and response speed. Suppliers can see the score before accepting an order — a buyer with score 85+ is low-risk for 30-day credit.