5 Clauses Every MSME Contract Must Have to Avoid Costly Disputes
📌 Why Contracts Matter for MSMEs
For many Indian MSMEs, business still runs on trust and handshakes. While trust is important, the truth is: when payments get delayed or disputes arise, the absence of a clear written contract can cost you months in court, unpaid invoices, and even relationships.
A good contract doesn’t need to be filled with legal jargon. Even a 2–3 page agreement with the right clauses can protect you from costly mistakes.
Here are 5 must-have clauses every MSME should include 👇
1. Payment Terms & Timelines
• State how much, when, and how payment will be made (bank transfer, UPI, cheque, milestone-based).
• Add a clause for interest on late payments.
• Example: “Payment shall be made within 30 days of invoice. Delays will attract 1.5% monthly interest.”
👉 Why this matters: 70%+ MSME disputes in India are about late or denied payments. A clear clause makes recovery faster.
2. Scope of Work / Deliverables
• Define what you will provide, quantity, timelines, and quality standards.
• Example: “Vendor will supply 1,000 corrugated boxes, 7-ply, within 15 business days of order.”
👉 Why this matters: Vague work descriptions cause the classic fight: “I thought you were also supposed to do this...”
3. Termination Clause
• Spell out when and how either side can end the contract.
• Example: “Either party may terminate this agreement with 30 days’ written notice, provided all dues are cleared.”
👉 Why this matters: Without this, you risk being locked into unfair deals or facing sudden cancellations.
4. Dispute Resolution (Arbitration/Mediation)
• Mention how disputes will be settled if they arise.
• Prefer arbitration or mediation to avoid long court cases.
• Example: “Any disputes shall first be attempted to resolve through mediation. If unresolved, they shall be referred to arbitration in [City], under the Arbitration and Conciliation Act, 1996.”
👉 Why this matters: Court cases can drag on for years. ADR (Alternate Dispute Resolution) saves time and money.
5. Force Majeure (Unforeseen Events)
• Protects both sides when events beyond control (pandemics, floods, strikes) make performance impossible.
• Example: “Neither party shall be liable for delays or failures caused by events beyond their control, including natural disasters, government restrictions, or strikes.”
👉 Why this matters: COVID-19 showed us how business disruptions can ruin contracts — unless they’re covered in writing.
Conclusion:
MSMEs don’t need lengthy, expensive legal contracts. But they do need clarity. Adding these 5 clauses can prevent unnecessary disputes, save time, and keep your focus on business growth instead of litigation.
👉 Remember: A handshake builds trust, but a contract protects it.
“We’ve prepared a professionally branded MSME Contract Checklist (PDF) exclusively for our readers. Email us with subject MSME CONTRACT CHECKLIST to get your copy
straight in your inbox.”