The number of complaints filed by small businesses over delayed payments by customers is approaching the 100,000 mark, involving a sum of Rs 24,385 crore. Of this amount, only 12 percent has been disposed of or mutually settled.

An estimated 91,424 applications have been filed so far, according to the MSME Samadhaan, a delayed-payment monitoring portal set up four years ago as part of the government’s efforts to clear dues to micro, small and medium enterprises.

Micro and Small Enterprise Facilitation Councils, which are set up at the state level to help resolve payment issues, have disposed of 9,543 such cases involving Rs 1,703 crore, and rejected 18,319 cases. They have helped in mutual settlements in 8,984 cases for an amount of Rs 1,259 crore.

The councils are currently considering 24,779 cases, while 29,807 applications are yet to be viewed.

Delays in payments to MSMEs blocks their working capital, impedes the overall business cycle and poses liquidity challenges.

The Centre will clear all dues to MSMEs within 45 days, finance minister Nirmala Sitharaman said on July 26.

“I am personally monitoring this,” the minister said during Question Hour in Parliament on July 26, while clarifying the government’s position on clearing dues owed to MSMEs by the Centre and public sector undertakings.

“Although the Micro, Small and Medium Enterprise Development Act, 2006, provides that buyers should make payments to MSMEs within 45 days, this is not honoured by most entities,” Mukesh Mohan Gupta, chairman of the Chamber of Indian Micro Small and Medium Enterprises, told Moneycontrol.

Gupta said the government should change the infrastructure and composition of the MSE Facilitation Councils to fast-track the settlement of disputes.

“MSE Facilitation Councils should be established at a district level instead of state. Otherwise, it becomes difficult for MSME entrepreneurs to file cases and follow up on those. Also, the government must change the composition of the councils with more independent people and not existing officers who have other additional responsibilities,” Gupta said.

He observed that unlike the courts, the facilitation councils did not have online proceedings/hearings during Covid-19, which further delayed the processing of cases.

“There should be an online system for hearings and cause lists should be prepared for the cases to be heard,” Gupta added.

The facilitation councils are established by governments at the state level for settlement of disputes arising out of delayed payments to small businesses by government departments, ministries and central public sector enterprises, proprietors and individuals. Under MSME Samadhaan, a case referred to a state council must be decided within 90 days.

After examining the cases, the council directs the buyer to pay the dues along with interest. If the payment is delayed beyond 45 days, MSEs can approach the councils to fast-track the settlement of dues. MSMEs have to file applications for delayed payments against the buyers with councils in their state.

Ramamurthy, a member of the All India Council of Associations of MSMEs, which represents 170 MSME associations across the country, said, “We appreciate the efforts that the government has taken to resolve the delayed payment problem. Despite efforts by the government, the condition of MSMEs is bad. It could have been far worse had the government not brought measures to resolve it.”

The government must introduce stricter laws so that the 45-day payment limit is adhered to, he said.

“It should bring a system that the buyer should also pay interest for the amount due to the MSME or bring in factoring schemes for MSMEs so that they do not have to stall operations due to a liquidity crunch,” he added.

Yogesh Pawar, Chairman Association of Inspiring Syndicate of Entrepreneurs said, "The govt. should in coordination with PSUs, NBFCs and Fintech tackle the rising credit gap for this sector, as this sector is a growth engine for the economy.  If this credit gap is not addressed the industry may suffer irreversible damage."

The MSME Samadhaan portal was launched by then MSME minister of state Giriraj Singh in October 2017.