Forty-five days: how Section 43B(h) and TReDS are reshaping working capital
A tax provision and a receivables platform have quietly changed who carries the cost of credit in Indian supply chains. Both sides of the invoice need a plan.
Small suppliers to large Indian companies have always financed their customers. Ninety- and hundred-and-twenty-day payment cycles were negotiated as commercial terms, and the supplier's bank — through its cash credit limit — carried the gap. Two policy changes have shifted that burden back towards the buyer.
The tax lever: Section 43B(h)
The Finance Act, 2023 inserted clause (h) into Section 43B of the Income-tax Act. A buyer may deduct an amount payable to a micro or small enterprise only if it is paid within the time allowed by Section 15 of the MSMED Act, 2006 — within fifteen days where there is no written agreement, and never beyond forty-five days where there is one. An amount left outstanding past that window at the year end is not deductible until the year in which it is actually paid.
For a profitable buyer, that is a direct tax cost for paying late. Many large companies have responded by renegotiating supplier terms to forty-five days, accelerating their own payables — and, in turn, needing more working capital themselves.
The platform lever: TReDS
The Trade Receivables Discounting System lets a supplier sell an invoice accepted by its buyer to banks and NBFCs through an auction, at a price set on the buyer's credit rather than the supplier's. By Gazette notification S.O. 4845(E) of 7 November 2024, the Ministry of MSME lowered the threshold for mandatory onboarding from ₹500 crore to ₹250 crore of turnover, with companies above it — together with central public sector enterprises — required to register by 31 March 2025.
What it means for each side
For a supplier, the combination is a genuine improvement: faster collection, and a route to finance receivables at a large buyer's cost of credit without pledging more collateral. It also changes how lenders read the supplier's file — a receivables book concentrated in TReDS-registered buyers is a higher-quality asset.
For a buyer, the forty-five-day world makes working capital planning a board-level topic. The inventory and receivables cycle that was once funded by suppliers now sits on the buyer's own balance sheet, and existing fund-based limits sized for the old cycle may no longer be enough. That is exactly the kind of mismatch that, left unaddressed, surfaces as a stretched cash credit account.
In both cases the practical step is the same: rebuild the working capital assessment on today's cycle, not last year's, and put the facility in place before it is urgently needed.
This article is general information about the financing landscape, current as of its publication date. It is not financial, legal or tax advice; regulations change, and every company’s position is different.
