Payment Terms in Indian Contracts: Net-30, Milestones, and Getting Paid

A payment terms clause fixes four things: how much is owed, when it falls due, what has to happen before it falls due (invoicing, acceptance, milestones), and what happens if it is not paid. The one thing most people get wrong: they treat "net-30" as a universal default, when in India the real floor is statutory, not contractual, the moment your supplier is a registered micro or small enterprise. This guide (published by Adira, which makes contract review and CLM software, so it has a commercial stake in you signing more contracts, but it is written to stand on its own) walks through the Indian statutory position, a Supreme Court ruling that decides who actually gets its protection, and the mechanics, milestones, disputed invoices, suspension, currency, that make a payment clause work in practice.

Plain meaning

A payment terms clause answers: price and currency, when payment is due relative to invoicing or delivery (advance, arrears, or net-X days), what triggers the right to invoice (delivery, acceptance, a milestone), how disputes over an invoice are handled, and what the paying party can do if payment is late (interest, suspension, termination). "Net-30" means payment is due 30 days after a defined start point, usually the invoice date, sometimes delivery or acceptance. Net-45 and net-60 work the same way with longer clocks. None of these numbers exist in Indian law as such, they are commercial convention. What Indian law does add, and most commercial contracts in India ignore, is a hard cap on how long a buyer can take to pay a micro or small enterprise supplier, regardless of what the contract says.

Who it protects and what triggers it

Every commercial contract has a payment clause, but the party it actually protects shifts with registration status. A supplier registered as a micro or small enterprise under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) gets a statutory payment deadline and a compound interest penalty that override contrary contract terms. A supplier that is not MSME-registered, a large company, an unregistered vendor, a foreign counterparty, gets only whatever the contract says; net-90 or net-120 is legally fine between two such parties, just commercially unusual.

The trigger for payment is rarely "invoice raised." It is almost always acceptance, delivery confirmed, a milestone signed off, a deliverable approved, whichever the contract names. That gap between delivery and acceptance is where most late-payment disputes start: if acceptance is undefined or left to the buyer's discretion, the buyer effectively controls when the payment clock starts, or whether it starts at all.

What to look for

Five things change how risky a payment clause actually is:

1. What starts the clock. Invoice date, delivery date, or acceptance date can each be weeks apart. A clause silent on this, or one that says "payment due within 30 days of acceptance" without defining acceptance, hands the buyer an informal veto over timing.
2. Advance vs arrears vs milestones. Advance shifts credit risk to the buyer (pay first, hope for delivery); arrears shifts it to the seller (deliver first, hope for payment); milestones split it, each tranche gated on a defined deliverable, the safest structure if the gates are objective.
3. How a disputed invoice is handled. Does disputing part of an invoice let the buyer withhold the whole thing, or only the disputed portion, with the rest still due on time? Silence is read as "withhold everything," how a real delay gets dressed up as a "dispute."
4. What happens on non-payment. Does the clause state a late-payment interest rate, a right to suspend further work or deliveries, and a cure period before termination? No interest rate and no suspension right leaves litigation as the only real remedy.
5. Who carries currency risk. In a cross-border contract, is the price fixed in INR, USD, or elsewhere, and who absorbs exchange-rate movement between invoice and payment date? Unallocated currency risk becomes a real dispute the first time the rupee moves 5% in a quarter.

A quick test: check three things in order. Does the clause name a specific number of days from a specific, defined event (not "acceptance" left undefined)? Does it state what happens if payment is late? Does it say whether disputing part of an invoice lets the buyer withhold all of it? Vague, silent, silent, in that order, means the clause was drafted to give the buyer maximum informal leverage over timing.

The Indian position: the MSME 45-day rule

Section 15 of the MSMED Act, 2006 reads:

"Where any supplier supplies any goods or renders any services to any buyer, the buyer shall make payment therefor on or before the date agreed upon between him and the supplier in writing or, where there is no agreement in this behalf, before the appointed day: Provided that in no case the period agreed upon between the supplier and the buyer in writing shall exceed forty-five days from the day of acceptance or the day of deemed acceptance."

Source: Section 15, MSMED Act, 2006 (Indian Kanoon)

Two things follow directly. First, if there is no written agreement on payment terms, the buyer must pay within 15 days of acceptance (the statutory "appointed day"). Second, even where the contract does fix a longer period in writing, 45 days from acceptance is a hard statutory ceiling, not a default. A written clause that says "payment due net-90" against a registered micro or small enterprise supplier is void to that extent; the 45-day cap applies regardless of what the contract says.

Section 16 backs this with a penalty that is unusually strong for Indian commercial law:

"Where any buyer fails to make payment of the amount to the supplier, as required under section 15, the buyer shall, notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force, be liable to pay compound interest with monthly rests to the supplier on that amount from the appointed day or, as the case may be, from the date immediately following the date agreed upon, at three times of the bank rate notified by the Reserve Bank."

Source: Section 16, MSMED Act, 2006 (Indian Kanoon)

Three times the RBI bank rate, compounded monthly, is punitive by design, well above a normal late-payment rate, and it applies "notwithstanding anything contained in any agreement," so the parties cannot contract out of it. A clause capping late-payment interest at, say, 12% per annum simple interest does not override Section 16 where the supplier is a registered MSE.

There is a second consequence buyers underestimate: Section 43B(h) of the Income Tax Act, 1961, inserted by the Finance Act 2023 and effective from assessment year 2024-25, disallows the buyer's tax deduction for the expense if it is not actually paid to the MSE supplier within the Section 15 time limit. Unpaid at financial year-end, the deduction is pushed to the year payment actually happens, a direct tax cost of paying late.

Two other mechanics belong in the same clause. Under Section 31 of the CGST Act, 2017, a tax invoice for services must generally be issued within 30 days of the service being provided (before or at delivery for goods); getting this wrong affects when GST is payable and when the recipient can claim input tax credit. Separately, TDS under Section 194C (contract payments, 1% for individuals/HUF, 2% for others) or Section 194J (professional and technical fees, generally 10%) is deducted at source above prescribed thresholds (Section 194C: over Rs 30,000 single payment or Rs 1,00,000 aggregate in the year), so what lands in the supplier's account is invoice value minus TDS. A clause that does not say "TDS deductible at source as applicable" invites a dispute over a shortfall that was never really a shortfall.

Named Indian case: who actually gets Section 15 protection

M/S Silpi Industries Etc. v Kerala State Road Transport Corporation (Civil Appeal Nos. 1570-1578 of 2021, decided 29 June 2021) is the case that decides a threshold question every payment clause review has to ask first: does this supplier even qualify for the MSMED Act's 45-day rule and Section 16 interest.

KSRTC had purchase orders with Silpi Industries for thread rubber, 90% payable on supply and 10% held back pending a final performance report, a milestone-style structure. When the dispute reached the Facilitation Council and then the Supreme Court, the Court held that the MSMED Act's beneficial provisions, including the Section 15 timeline and Section 16 interest, are available only to a supplier registered as a micro or small enterprise before entering into the contract. A supplier that registers only after signing, or after the dispute arose, cannot claim the Act's protection retrospectively. The Court also held the Limitation Act, 1963 applies to claims before the Facilitation Council, so a stale claim is time-barred there too, as in ordinary civil litigation.

The practical consequence for a payment clause: before you rely on, or resist, the 45-day cap and Section 16 interest, check whether the supplier held valid Udyam registration on the date the contract was signed, not the date payment fell due or the date of the dispute.

Red flags

Normal	Red flag	Why it matters
Payment due a stated number of days from invoice date, delivery, or written acceptance	Payment gated on "acceptance" with no definition, no deadline, and no deemed-acceptance clause	The buyer can delay the clock indefinitely just by not accepting, without technically breaching anything
Net-30/45/60 terms with a supplier that is not a registered MSE	Net-60, net-90, or longer terms imposed on a registered micro or small enterprise	Void beyond 45 days from acceptance under Section 15; the supplier can still claim Section 16 interest from day 46
A stated late-payment interest rate, even a modest one, with a defined trigger date	No interest clause at all for late payment	For a non-MSME supplier, silence often means no automatic entitlement to interest outside a lawsuit
Only the disputed line item is withheld; undisputed amount still due on time, with a notice period to raise a dispute	Buyer can withhold the entire invoice over a dispute on any part of it, with no time limit to raise the dispute	Turns "dispute" into an informal, unlimited extension on payment already delivered and accepted
A defined right to suspend further work after a stated number of days of non-payment, with notice	No suspension right; the only remedy is litigation or arbitration	Forces the unpaid party to keep performing, or walk away and risk a breach claim, while the dispute drags on
Pay-when-paid language absent, or a fixed payment date independent of the main contract's cycle	Subcontractor paid only "when and if" the main contractor is paid by the client	Shifts the client's credit and payment risk onto a subcontractor with no relationship to that client
Currency and rate mechanism stated: invoice currency, conversion date, who bears FX movement	Price in one currency, payment in another, no stated conversion date or rate source	Leaves real commercial risk unallocated; the weaker negotiating party usually absorbs the loss

Bad clause → better clause

Bad: "Client shall pay Vendor's invoices within 60 days of Client's acceptance of the deliverables, acceptance to be at Client's sole discretion. Client may withhold payment of any invoice in full in the event of any dispute regarding any part of the deliverables. No interest shall accrue on any late payment."

What is wrong: acceptance is entirely discretionary with no deadline, so the clock may never start; a dispute over one line lets the buyer withhold the whole invoice; and the "no interest" line is unenforceable against a registered MSE supplier under Section 16, and simply removes the paying party's own incentive to pay on time against anyone else.

Better: "Client shall pay undisputed invoices within 30 days of the invoice date, provided the deliverable has been accepted or deemed accepted under Clause [X] (deemed acceptance: 10 business days from delivery, absent written rejection with specific defects). Where Client disputes part of an invoice in good faith with written reasons within 10 business days of receipt, Client shall pay the undisputed portion on the original due date and the disputed portion within 10 business days of resolution. Late payment shall bear interest at 1.5% per month, or, where Vendor is a registered micro or small enterprise under the MSMED Act, 2006, the statutory rate under Section 16 if higher. Vendor may suspend further deliverables, on 15 days' written notice, if payment remains outstanding beyond 30 days past due. Where Vendor is a registered micro or small enterprise, nothing in this Clause shall extend the payment period beyond 45 days from acceptance or deemed acceptance under Section 15 of the MSMED Act, 2006."

What changed: acceptance has a deadline and a deemed-acceptance fallback so the clock cannot be held open indefinitely; a partial dispute only withholds the disputed part; a real interest rate applies, deferring to the higher MSME statutory rate where relevant; there is a defined suspension right; and the clause caps itself at the 45-day ceiling instead of accidentally promising something illegal to an MSE supplier.

How it interacts with related clauses

• Late-payment interest. Payment terms and the interest rate are really one topic split across two clauses in most templates; keep the rate and the MSME override consistent, and see our late-payment interest guide for the full mechanics of Section 16 compounding.
• Termination for cause. Non-payment beyond a defined period should be an express termination trigger with a cure window, not left to general "material breach" language.
• Indemnity and limitation of liability. Late-payment interest and suspension of service should sit outside a general liability cap; check the cap does not accidentally swallow the interest obligation.

You can map out a payment clause, its acceptance trigger, its interest rate, and its suspension right, for free in Weave, before you negotiate it back.

US and global contrast

The US has no general federal equivalent of India's MSMED Act cutting across private contracts; net-30, net-60, even net-90 are common and generally enforceable as agreed, though the federal Prompt Payment Act sets timelines for the government's own payments to contractors, and some states set shorter mandatory terms for construction subcontractors. The UK's Late Payment of Commercial Debts (Interest) Act 1998 is closer: it implies a statutory interest rate (Bank of England base rate plus 8%) into contracts silent on late payment, but, unlike the MSMED Act, does not cap how long the parties can agree payment should take, it only fills a gap.

India's approach is the more interventionist of the three: a hard statutory ceiling on payment time (45 days from acceptance) that overrides a longer term the parties actually signed, but only for one category of supplier, a registered micro or small enterprise. For every other counterparty, payment terms are pure negotiation, exactly like the US and UK.

FAQ

Does "net-30" mean 30 calendar days or 30 business days in India? Not fixed by any law; it means whatever the contract defines. Most Indian contracts use calendar days unless stated otherwise. If the clause is silent, calendar days is the safer assumption, and worth fixing before signing.

Can two Indian companies agree to net-90 payment terms? Yes, if neither party is a registered micro or small enterprise supplier. Between two large companies, or where the supplier is not MSME-registered, there is no statutory cap; net-90 or longer is a commercial choice, not a violation.

What happens if a buyer pays a registered MSE supplier late? Section 16 makes the buyer liable for compound interest, with monthly rests, at three times the RBI-notified bank rate, running from the day after the due date, regardless of contrary contract terms. From FY 2023-24, Section 43B(h) of the Income Tax Act can also disallow the buyer's tax deduction for that expense until the year it is actually paid.

Is a "pay-when-paid" clause in a subcontract enforceable in India? There is no MSMED-style bar on it for non-MSME subcontractors, so courts generally give effect to what the parties agreed, but it shifts the client's credit risk onto a subcontractor with no relationship to that client. If the subcontractor is a registered MSE, the 45-day cap still runs from acceptance of its own work, independent of when the main contractor gets paid.

How do I know if my supplier's MSME registration actually protects them under this contract? Per Silpi Industries, registration has to exist on the date the contract was signed, not the date payment fell due or a dispute arose. Ask for the Udyam registration certificate and its date before assuming the 45-day cap and Section 16 interest apply.

Does GST or TDS change how much is actually paid under a net-30 clause? Yes, indirectly. GST is charged on top of the price and paid to the government, not withheld from the supplier's receipt, but the invoice date under Section 31 of the CGST Act affects when it becomes payable. TDS under Section 194C or 194J, where applicable, is deducted from what the buyer pays, so what reaches the supplier's account is invoice value minus TDS, worth acknowledging in the clause rather than disputing later.

This guide explains how Indian payment-terms law works, the MSME 45-day rule, Section 16 interest, and the registration timing question Silpi Industries decided. It does not tell you whether your specific supplier qualifies, whether a given delay is defensible, or how much interest is actually owed on your facts; that depends on registration status, the contract's own wording, and evidence of when acceptance actually happened, and is not legal advice. Talk to a lawyer or a chartered accountant before you rely on, negotiate, or enforce a payment terms clause in a live deal.