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Mitigating impact of litigation costs on MSMEs: Solutions beyond credit

While accessing credit is a common recourse for MSMEs facing financial challenges, it is not always the only option, especially when it comes to notifying litigation costs. Therefore, it becomes important to explore alternative solutions that offer practical and holistic approaches to mitigate the impact of litigation on MSMEs.

Micro, Small, and Medium Enterprises (MSMEs) are the backbone of the Indian economy, driving growth and innovation. However, their success is often hampered by a significant challenge: litigation costs. While traditional credit solutions might offer a temporary band-aid, they don’t address the root cause or provide long-term stability.

With a whopping 63.4 million MSMEs in India, covering litigation costs can be financially draining for businesses. Studies by the Global Alliance for Mass Entrepreneurship (GAME) and Duns & Bradstreet (D&B) estimate that Indian MSMEs spend a whopping Rs 1.6 lakh crore annually on legal issues. But why are they forced down this expensive path?

The culprit? Delayed payments. Research by Duns & Bradstreet reveals a staggering Rs 10.7 lakh crore stuck in delayed payments. This is a major roadblock for MSMEs, who often operate with limited cash flow. Without a steady inflow of product and service sales, their very survival is threatened.

Recognizing this crisis, the Indian government introduced the timely payments rule. This regulation mandates companies to settle payments to MSMEs within 45 days to remain eligible for tax deductions. Failure to comply means overdue amounts get taxed.

While this is a step in the right direction, the fight for smoother cash flow and reduced litigation costs for MSMEs continues. Let’s explore innovative strategies beyond traditional credit that can empower MSMEs to navigate legal challenges more effectively.

Imagine you’re running a small business, trying to make ends meet. Suddenly, you’re hit with legal troubles, and the bills start piling up—attorney fees, court charges, settlement costs. It’s like a never-ending drain on your finances, leaving little room for growth or innovation. But it’s not just about the money. These legal battles take a toll on you emotionally too.

They distract you from your work, keep you up at night, and strain your relationships with customers and suppliers. It’s like a dark cloud hanging over your business, making it hard to see a way forward. The repercussions of these litigation costs, which can take an average of 3-4 years to resolve in India’s overburdened court system, go way beyond the courtroom. They affect every part of your business, making it harder to grow and flourish. It’s time to find a unique solution to deal with them.