Corporate affairs ministry facilitates tracking down of payments to MSMEs
The Ministry of Corporate Affairs (MCA) has made it easier for authorities to find out whether the company concerned is holding payments of vendors, especially micro, small, and medium enterprises (MSMEs) and for how many years.
From the next month, companies are required to disclose trade payables according to their ageing — less than one year, 1-2 years, 2-3 years, and more than three years — in their financial statements.
This would be divided between MSMEs and others. Within each category, there would be further sub-categories — disputed and undisputed.
On the same lines, the ageing for trade receivables will also be disclosed. Currently, companies are only required to disclose trade payables into two parts — payables to MSMEs and payables to non-MSMEs. There is no requirement to provide any ageing details.
On the matter of receivables, the only requirement is to divide it between up to six months and more than six months.
“This will allow the government to immediately track down serious corporate offenders and act strictly against defaulting companies in order to protect MSME vendors,” said Nischal S Arora, partner regulatory at Nangia Andersen.
Amit Maheshwari, tax partner at AKM Global, said the MCA’s move will help stakeholders get an understanding on how quickly the company is converting its debtors into cash and cash equivalents.
“It would also help the stakeholders track whether the company is regular in making payment to its vendors,” he said. Besides, the stakeholders will get to figure out the debtors, which will most likely become bad and doubtful, Maheshwari said.
In terms of MSME Development Act, 2006, any person who has purchased goods or procured services from the MSME supplier is bound to make payments within a maximum period of 45 days. Any delay beyond this makes the buyer liable to pay interest at three times the bank rate notified by the RBI.
Dear Reader,
Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.
As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.
Support quality journalism and subscribe to Business Standard.
Digital Editor
