Set the credit period by what you can afford to wait for, not only by what the buyer asks, and keep it as short as your trade allows. Give a new buyer a small limit, and raise it only after several invoices are paid on time. Put the due date, interest on late payment and the place for disputes in writing on the purchase order and the invoice. If you are a Udyam-registered micro or small enterprise, the law requires the buyer to pay within 45 days at the most.
How to set the credit period
- Start from your own cash cycle. If you pay your suppliers in 30 days, giving buyers 60 days means you fund the gap yourself.
- Keep it short for new buyers. Advance payment, payment on delivery or 7 to 15 days is reasonable for a first order. Extend the period as the buyer builds a record with you.
- Match the risk. The FundRaksha Trust buyer verification report suggests terms along these lines: normal terms such as 30 to 45 days where the checks look sound, a lower limit and short terms or part payment in advance where care is needed, and advance payment or cash on delivery where credit should be avoided.
- Count from a clear date. Say whether the period runs from the invoice date or the delivery date, and print the due date on the invoice.
How to set the credit limit
A credit limit is the largest amount you allow one buyer to owe you at any time.
- Decide the amount you could lose from this buyer without hurting your own business. That is the ceiling.
- Start well below the ceiling. The first orders are a test.
- Review after a few invoices. Raise the limit when payments come on time; cut it when they slip.
- Stop new supplies when the buyer crosses the limit or has an overdue invoice. Make this a rule, so it is not a personal decision each time.
- Re-check the buyer from time to time. See how to check a buyer before giving credit.
In FundRaksha Trust you can set a credit limit and credit days for each buyer and track receivables and ageing free of charge, with a warning before an invoice crosses the limit, as described on the how it works page.
The MSME 45-day rule in one paragraph
If you are a Udyam-registered micro or small enterprise, Section 15 of the MSMED Act, 2006 requires the buyer to pay by the date agreed in writing, and that date cannot be more than 45 days from the day the goods or services are accepted. If nothing is agreed in writing, the buyer must pay within 15 days. A buyer who pays late owes compound interest, with monthly rests, at three times the bank rate notified by the RBI. Under Section 43B(h) of the Income-tax Act, the buyer can also claim the purchase as an expense only in the year it actually pays, if it pays after the time limit. For details, see FundRaksha Legal's guides on Section 43B(h) and how to file an MSME Samadhaan case.
What to put on the invoice
A tax invoice must carry the details the GST rules require, such as your name, address and GSTIN, a serial number and date, the buyer's name, address and GSTIN, HSN or SAC codes, the taxable value, and the tax rate and amount. For getting paid, add these:
- Payment terms and due date, for example: "Payment due within 30 days of invoice date. Due date: 1 November 2026."
- Interest on late payment, with the rate. If you are a micro or small enterprise, say that interest under the MSMED Act will apply.
- Your Udyam registration number, if you have one, with a line that you are a micro or small enterprise. It puts the buyer on notice of the 45-day rule.
- Purchase order number and date, so the invoice ties back to the buyer's own order.
- Bank account details in your legal or trade name.
- Jurisdiction: the city whose courts will hear disputes.
- A line for acknowledgement of receipt of goods, with signature, date and stamp.
Terms printed only on your invoice are weaker than terms the buyer has signed. Get the same terms into the purchase order or a short signed agreement wherever you can.
When the due date passes
- Send a polite written reminder with the invoice number, amount and due date.
- Stop further supplies on credit until the overdue amount is cleared.
- Follow up regularly and keep a record. FundRaksha Trust offers payment follow-ups by call and email on your schedule.
- Send a formal legal notice. See legal notices for unpaid dues and cheque bounce.
- Remind the buyer that, under GST law, a recipient who does not pay the supplier within 180 days of the invoice date has to reverse the input tax credit taken on that invoice, with interest.
- If the buyer still does not pay, consider MSME Samadhaan (for micro and small enterprises), a cheque bounce complaint or a civil suit. FundRaksha Legal handles advocate-led recovery.
Frequently asked questions
What is a normal credit period for B2B sales in India?
It varies by trade, and 30 to 90 days is common. Choose the period by your own cash cycle and the buyer's record. Where the supplier is a micro or small enterprise, the law caps it at 45 days from acceptance.
Can a buyer and an MSME supplier agree to more than 45 days?
Not for a Udyam-registered micro or small supplier. Under Section 15 of the MSMED Act the agreed period cannot be more than 45 days from the day of acceptance.
Can I charge interest on late payment?
Yes. State the rate in your terms and on the invoice. Micro and small enterprises are entitled by law to compound interest at three times the RBI bank rate, whatever the contract says.
How do I decide a credit limit for a new buyer?
Start with an amount you can afford to lose, well below what the buyer asks for, and raise it only after several invoices are paid on time.
Are payment terms printed on the invoice binding?
They are evidence of your terms, and stronger when the buyer has accepted the invoice without objection. Terms in a signed purchase order or agreement are stronger still.
This guide is general information for Indian businesses, not legal or tax advice. GST data shown by any tool comes from public records and should be confirmed on the GST portal before you act on it.