Payment Demand Notice (MSMED Interest)
A polite but firm demand notice for unpaid invoices, with an optional MSMED Act paragraph for Udyam-registered suppliers and the MSME Samadhaan route.
A payment demand notice is a formal letter asking a customer to pay overdue invoices by a deadline, warning of further action. Send one when reminders have failed and before filing an MSME Samadhaan reference, a suit or arbitration.
What to watch when you use this
- Sections 15 and 16 of the MSMED Act, 2006 protect only micro and small enterprises. Use the MSMED paragraph only if you hold a valid Udyam registration and fall in the micro or small category.
- Courts have generally held that the supplier should have been registered when the contract was entered into to claim MSMED protection. Note your registration date in the notice.
- Under Section 16, interest is compound with monthly rests at three times the bank rate notified by the Reserve Bank of India, and applies notwithstanding any contrary agreement. Use the bank rate in force for the relevant period when calculating.
- Where no payment date was agreed, payment is due within 15 days of acceptance or deemed acceptance. An agreed period cannot exceed 45 days.
- Do not wait too long. Recovery claims are subject to limitation, generally three years, so send the notice and act on it promptly.
Stamping and registration. Stamp duty is a State subject, and an unstamped or insufficiently stamped instrument is generally inadmissible in evidence under Section 35 of the Indian Stamp Act, 1899 until the duty and penalty are paid. Registration requirements are separate and depend on the instrument and the State. Confirm both for your State before executing this document.
PAYMENT DEMAND NOTICE
[SUPPLIER NAME]
[ADDRESS]
GSTIN: [GSTIN]
[Udyam Registration No.: [UDYAM-XX-00-0000000]]
Email: [EMAIL] Phone: [PHONE]
Date: [DATE]
By Speed Post and email
To,
[BUYER NAME]
[DESIGNATION OF ADDRESSEE, FOR EXAMPLE DIRECTOR / ACCOUNTS HEAD]
[BUYER REGISTERED ADDRESS]
Email: [BUYER EMAIL]
Subject: Demand for payment of ₹[TOTAL AMOUNT] due under [PURCHASE ORDER / AGREEMENT NO. AND DATE]
Dear Sir / Madam,
1. We write regarding amounts due to us for [goods supplied / services rendered] to you under [PURCHASE ORDER / AGREEMENT / WORK ORDER NO. [NUMBER] dated [DATE]] ("Contract").
2. Under the Contract, we [delivered the goods / rendered the services] described in the Schedule to this notice on the dates shown there. You received them, and no written objection about their quality, quantity or conformity was raised within fifteen days of delivery, or at all. [ALTERNATIVE: You accepted them in writing on [DATE].]
3. We raised the invoices listed in the Schedule. Under the Contract, each invoice was payable within [NUMBER] days of [invoice / acceptance].
4. Despite our reminders dated [DATES], a total of ₹[PRINCIPAL AMOUNT] (Rupees [AMOUNT IN WORDS] only) remains unpaid. Part payments received, if any, have been credited as shown in the Schedule.
[USE PARAGRAPHS 5 TO 7 ONLY IF YOU ARE A UDYAM-REGISTERED MICRO OR SMALL ENTERPRISE. OTHERWISE, DELETE THEM AND USE PARAGRAPH 5A.]
5. We are a [micro / small] enterprise registered under Udyam Registration No. [UDYAM NUMBER] since [DATE OF REGISTRATION]. We supplied to you as a registered micro or small enterprise.
6. Under Section 15 of the Micro, Small and Medium Enterprises Development Act, 2006, you were required to make payment on or before the date agreed in writing, which cannot exceed 45 days from the day of acceptance or deemed acceptance, or, where no date was agreed, before the appointed day. Under Section 16 of that Act, where payment is delayed, you are liable to pay compound interest with monthly rests on the amount due, from the appointed day or the agreed date, at three times the bank rate notified by the Reserve Bank of India, notwithstanding anything in any agreement.
7. Interest calculated on that basis up to [DATE] amounts to ₹[INTEREST AMOUNT], as set out in the Schedule. Interest continues to accrue until payment.
[5A. ALTERNATIVE FOR SUPPLIERS NOT REGISTERED AS MICRO OR SMALL ENTERPRISES: Under clause [NUMBER] of the Contract, overdue amounts carry interest at [RATE]% per annum. Interest up to [DATE] amounts to ₹[INTEREST AMOUNT]. If the Contract does not provide for interest, delete the amount and state that we reserve our right to claim interest as permitted by law.]
8. We therefore call upon you to pay ₹[TOTAL AMOUNT], being the principal of ₹[PRINCIPAL AMOUNT] and interest of ₹[INTEREST AMOUNT], within [NUMBER, FOR EXAMPLE 15] days of receipt of this notice, by bank transfer to:
Account name: [NAME] Bank: [BANK] Account number: [NUMBER] IFSC: [IFSC]
9. If you dispute any part of this amount, please write to us within [NUMBER, FOR EXAMPLE 7] days of receipt of this notice, stating the specific reasons and enclosing supporting documents, and pay the undisputed part within the time stated in paragraph 8. We are willing to meet to resolve any genuine issue.
10. If payment is not received within the time stated, we will take such steps as are available to us to recover the amount with interest and costs, without further notice. [FOR MICRO OR SMALL ENTERPRISES: These may include filing a reference before the Micro and Small Enterprises Facilitation Council under the MSMED Act, 2006 through the MSME Samadhaan portal.] [FOR OTHERS: These may include civil proceedings for recovery or such dispute resolution process as the Contract provides.]
11. This notice is issued without prejudice to all our other rights and remedies under the Contract and the law, all of which are expressly reserved.
Yours faithfully,
_______________________
[NAME]
[DESIGNATION]
For [SUPPLIER NAME]
Enclosures:
1. Copy of [Purchase Order / Agreement]
2. Copies of invoices and delivery challans or proof of service
3. Copies of reminders sent
4. Copy of Udyam Registration Certificate [if applicable]
SCHEDULE: STATEMENT OF AMOUNT DUE
Invoice no. | Invoice date | Delivery / acceptance date | Due date | Invoice amount (₹) | Paid (₹) | Outstanding (₹) | Days overdue | Interest to [DATE] (₹)
[NUMBER] | [DATE] | [DATE] | [DATE] | [AMOUNT] | [AMOUNT] | [AMOUNT] | [DAYS] | [AMOUNT]
Total principal outstanding: ₹[AMOUNT]
Total interest: ₹[AMOUNT]
Total amount demanded: ₹[AMOUNT]
[For MSMED interest, note the Reserve Bank of India bank rate applied for each period and the method of monthly compounding.]
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This free template is provided by ClauseAudit as general information, not legal advice, and using it does not create an advocate-client relationship. Replace every [BRACKETED] placeholder. Stamp duty and registration requirements vary by State and are your responsibility. Have the final document reviewed by a qualified advocate before use.When to use this template
- A customer has not paid invoices past the agreed due date despite reminders.
- You are a Udyam-registered micro or small enterprise and want to claim MSMED interest.
- You plan to file a reference on the MSME Samadhaan portal and want a clear record of demand first.
- You want to fix the amount due in writing before starting recovery proceedings.
How to fill it in
- Collect the contract or purchase order, invoices, delivery proof or completion records, and copies of earlier reminders.
- Check whether you were a micro or small enterprise registered on Udyam when the contract was made. If not, delete paragraphs 5 to 7 and use paragraph 5A.
- Fill in the Schedule with each invoice, its acceptance and due dates, payments received and amount outstanding.
- Calculate interest. For MSMED interest, apply three times the RBI bank rate with monthly compounding from the due date, and show your working.
- Set a reasonable deadline for payment, usually 15 days, and a shorter deadline for raising disputes.
- Sign the notice and send it by Speed Post with proof of delivery and by email, keeping copies and tracking records.
- If the deadline passes, file on the MSME Samadhaan portal or consult an advocate on recovery proceedings.
Key clauses explained
- Facts of supply and acceptance (paragraphs 2 and 3)
- The MSMED payment clock and most recovery claims depend on when the goods or services were accepted. Recording it, including the absence of objection, frames the claim.
- Udyam registration and date (paragraph 5)
- MSMED protection applies only to registered micro and small suppliers, and the registration date can be decisive. Stating it upfront avoids a technical objection later.
- Statutory interest (paragraphs 6 and 7)
- Section 16 interest at three times the RBI bank rate, compounded monthly, often motivates prompt payment once a buyer sees the figure.
- Dispute window (paragraph 9)
- Inviting specific objections within a short period, while asking for the undisputed part, shows good faith and makes later invented objections less credible.
- Next steps (paragraph 10)
- Naming the Facilitation Council and MSME Samadhaan, or other remedies, shows the demand is serious without making threats you are not entitled to make.
Frequently asked questions
Does a payment demand notice have to be sent through an advocate?
No. There is no legal requirement for a demand notice in a commercial recovery to be sent by an advocate. A supplier can send it in its own name. Some businesses use an advocate because it signals seriousness, and an advocate can also check the facts, interest calculation and limitation before the notice goes out.
Who can claim interest under the MSMED Act?
Only a supplier that is a micro or small enterprise, as classified under the MSMED Act, 2006 and registered on Udyam, can claim interest under Sections 15 and 16. Medium enterprises are not covered by these sections. Courts have generally held that the supplier should have been registered at the time of the contract to claim this protection.
How is MSMED interest calculated?
Section 16 provides for compound interest with monthly rests at three times the bank rate notified by the Reserve Bank of India, from the appointed day or the agreed payment date until payment. In practice, you apply the bank rate in force for each period, multiply by three and compound monthly on the outstanding amount. Show your working in the Schedule.
What is MSME Samadhaan?
MSME Samadhaan is the Government of India's online portal for micro and small enterprises to file delayed payment cases against buyers. The case is sent to the Micro and Small Enterprises Facilitation Council for the relevant State, which first attempts conciliation and, if that fails, may take up the dispute itself as arbitration or refer it to an arbitral institution.
What if the buyer says the work was defective?
A dispute about quality should normally have been raised in writing within the acceptance period. If the buyer raises it only after receiving the notice, that may weaken its position, but it does not automatically defeat it. This notice asks the buyer to state specific reasons within a short period and pay the undisputed part, which narrows any real disagreement.
Is there a time limit to recover unpaid invoices?
Yes. Recovery claims are generally subject to a three-year limitation period under the Limitation Act, 1963, usually counted from the due date of payment. A written acknowledgement of the debt signed by the buyer, or a part payment acknowledged in writing, before the period expires can start a fresh period. Act promptly rather than letting old invoices accumulate.
Been handed the other side's version instead?
Upload it and get every clause checked against Indian law, with the provision each finding rests on.
Review a freelance & consultant contractRead before you sign
- Udyam Registered? Your Client Has 45 Days to Pay YouSections 15 and 16 of the MSMED Act set a payment deadline and compound interest on delay for registered micro and small suppliers.
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- You Own Your Work Until You Sign It AwayUnder Indian copyright law an independent contractor is usually the first owner of what they create. Paying an invoice does not transfer it.
- Why Your IP Assignment May Expire After Five YearsSection 19 of the Copyright Act sets formalities for assignment, including a five-year default where no term is stated.
Related templates
This free template is general information about Indian law as at 2026-10-10, not legal advice, and using it does not create an advocate–client relationship. Replace every bracketed placeholder and have the final document reviewed by a qualified advocate before use.