Automating MSME Vendor Identification in Chemical Industry

Identifying MSME Vendors – How a Chemical Giant Automated the Process?

Ensuring Timely Payments and MSME Vendor Identification

The government has established explicit provisions to protect and reduce the credit risk of MSME vendors, including the crucial aspect of MSME Vendor Identification. To ensure that payments to MSMEs are not delayed beyond a specified period, the government mandates that companies disclose details when payments remain outstanding for over 45 days to MSME vendors. This provision necessitates accurate MSME Vendor Identification by companies.

What is an MSME?

Micro, Small and Medium Enterprises, also known as MSMEs, are defined under the Micro, Small and Medium Enterprise Development Act, 2006. The organizations that fulfill the following criteria are classified as MSME organizations:

Type of Enterprise Investment in plant & machinery or equipment should not be more than Turnover should not be more than
Micro Enterprise Rs. 1 crore Rs. 5 crores
Small Enterprise Rs. 10 crores Rs. 50 crores
Medium Enterprise Rs. 50 crores Rs. 250 crores

Thus, vendors who fulfill the above criteria will be classified as MSME vendors and consequently, the companies are required to ensure that their payments are completed within 45 days beyond which penal interest will be levied for micro and small companies. This necessitates them to verify which of their vendors are MSME vendors.

This becomes a tedious task especially when the company is dealing with thousands of vendors. Further, the MSME status keeps on changing each year. It is not necessary that a vendor who is an MSME vendor today will be an MSME vendor next year as well. Companies faced huge difficulties in verifying the MSME status of their vendors each year and automating this task was the need of the hour.

How A Ltd Automated MSME Confirmations?

A Ltd. is one of the giants in the chemical industry. Being one of the largest chemical companies, it dealt with 3 lakh vendors out of which 30,000 were active vendors. Its total annual purchases were Rs. 18,626.25 crores out of which it identified that only Rs. 110 crores were outstanding to the MSME vendors in the year end. Consequently, the huge gap in the figures raised concerns over the accuracy of the database. Clearly, automation was the need of the hour for getting MSME confirmations from such a huge number of vendors.

Earlier at A Ltd., the process for obtaining MSME confirmations was not systemised. A Ltd. obtained MSME confirmations 3 years before and the same confirmations were used each year to determine whether a particular vendor is an MSME or not. This led to inaccuracies in MSME identification and there were no updates as to whether an enterprise is still an MSME enterprise or not.

An automated solution was the need of the hour. That’s when they implemented Firmway’s MSME confirmation solution. Being a statutory compliance, it was important to ensure the accuracy of data. Due to non-accurate and untimely compliance led to penal interest @ 3 times of the bank rate notified by the RBI compounded with monthly rests. Consequently, this led to huge outflows in terms of penal interest which was a direct loss for the business.

How Firmway Helped A Ltd. Automate MSME Confirmations?

Firmway’s MSME confirmation tool allowed A Ltd. to automate its MSME confirmations. Following were the results that they witnessed after implementing Firmway’s MSME confirmation solution:

  • 30,000 MSME confirmations sent in a single click
  • 35% of the confirmations received in the first confirmation request itself
  • Overall, 80% response rate achieved. Earlier, it was just 15%-20%.
  • Nil error in detecting the MSME vendors.
  • 90% OCR verification success rate
  • 15,000 man-hours saved

Streamlining MSME Vendor Identification and Compliance

Earlier, they used to invest 100+ man-hours behind this confirmation exercise which eventually dropped to Zero after implementing the solution. Further, vendor education played an important role here. Firmway helped vendors understand the importance of MSME confirmations and why they were asked for their MSME status. Consequently, this led to a significant increase in their response rate.

Efficiently Managing MSME Vendor Data

Further, the solution auto-rejected old vendors from the system who claimed themselves as MSMEs earlier but were not MSMEs now. In fact, it identified that 40% of vendors were no more MSMEs. Further, the company had 3,000 new MSME vendors in the database and Firmway’s solution was able to identify MSME vendors with a 0% error rate.

Successful Implementation of Technology for MSME Compliance

A Ltd. was able to avoid penal interest rates as well as future ROC and CARO non-compliances. Identifying MSME vendors is posing significant difficulties for many such companies. However, by implementing technology, it is possible to automate the confirmations and ensure timely and accurate compliance. 


Promoting Timely Payments to MSMEs in India: A Look at Budget 2023-24

Promoting Timely Payments to MSMEs in India: A Look at Budget 2023-24


The Indian government’s unwavering commitment to promote Micro, Small, and Medium Enterprises (MSMEs) growth remains a cornerstone of economic development. This sector significantly contributes to employment, production, and exports, making it a focal point in the recent Budget 2023-24.

Budget 2023-24 Highlights

In her recent Budget 2023-24 speech, Finance Minister Nirmala Sitharaman introduced pivotal measures, consequently aiming at incentivizing timely payments to MSMEs. Now, let’s delve into the key proposals, thereby shaping the landscape for MSMEs in India.

Understanding the Proposed Clause

A critical aspect of the budget is the proposed insertion of clause (h) in  section 43B of the Income Tax Act. This clause dictates that any sum payable to a micro or small enterprise beyond the time limit specified in Section 15 of the Micro, Small and Medium Enterprises Development (MSMED) Act 2006 is deductible only upon actual payment.

The MSMED Act 2006 defines the time limit for payments as 45 days from the date of acceptance or the date of deemed acceptance of any goods or services.

Empowering MSMEs

The new clause not only promotes timely payments but also bolsters the bargaining power of MSMEs in negotiations with larger businesses. This is a significant stride towards creating a more equitable business environment.

Challenges in Identifying MSMEs Vendors

Despite these positive developments, identifying MSME vendors poses challenges due to turnover limit fluctuations and UDYAM certificate migrations. The need for a reliable solution is evident.

Firmway’s MSME Confirmation Software

To address this issue, the introduction of Firmway’s MSME confirmation software comes as a great relief for enterprises. The software helps enterprises identify the MSME status of their vendors, collect UDYAM certificates, and validate them using OCR technology.

By using Firmway’s software, enterprises can ensure that they are not only making timely payments to MSMEs but also saving them from incorrect information pass by MSME vendors.

The software efficiently streamlines the process of identifying MSMEs, consequently eliminating the need for manual verification and significantly reducing the chances of making mistakes.


In conclusion, the Indian government’s initiative to promote timely payments to MSMEs. Firmway’s MSME confirmation software and, consequently, go hand in hand in promoting the growth and development of this vital sector. Additionally, the software provides a simple and efficient solution to the challenge of identifying MSME vendors. Consequently, it aids enterprises in taking advantage of the tax benefits offered by the government.

  • Data collection with customized forms and follow-ups
  • MSME confirmations to help you know whether an entity is an MSME or not

It is time for all our readers to accelerate processes in their respective companies through efficient automation. Click here if you wish to take help.