Identifying and analyzing how changes in the credit period by the msme (micro, small and medium enterprise) law impact working capital management in the textile industry

Abstract

This capstone study examines the impact of revised credit period rules under the MSME Law—namely the 45-day payment directive—on the working capital management practices of Indian textile firms, specifically in the wholesale ready-made garment industry. The textile sector, which is primarily driven by MSMEs, relies considerably on trade credit agreements that traditionally employed long payment terms to respond to seasonal fluctuations and preserve customer loyalty. Yet, this regulatory shift has upset long-established cash flow circuits, creating challenges and opportunities for small businesses. Through the use of qualitative data collected from textile wholesalers in Ahmedabad, the study discusses the effect of the law on receivables, payables and overall liquidity. Findings suggest that although the law improves payment discipline and reduces dependence on informal credit, it also puts additional financial burden on buyers who had been used to longer credit. This research strengthens the insight of how MSME policy reforms reshape business activities and proposes recommendations for strengthening financial stability and compliance