What is TReDS?
TReDS is an electronic platform for facilitating the financing / discounting of trade receivables of Micro, Small and Medium Enterprises (MSMEs). Buyers (Large Corporations / Government Departments, PSUs, etc), Sellers (only MSMEs) and Financiers (Banks/NBFC Factors /other financial institutions permitted by RBI) are the participants on TReDS platform. It may be noted that only MSMEs can participate as Sellers on TReDS platform.
How does discounting on TReDS platform work?
Buyers and Sellers (only MSMEs) have to first get registered on a TReDS platform approved by RBI. Receivable Exchange of India Limited (RXIL) is one such TReDS platform approved by RBI.
Once buyers and sellers are registered on the platform, invoices for supplies made by the seller to the buyer are uploaded on the platform by the buyer and Financiers bid for funding the invoices. Process of discounting on TReDS platform works as follows.
- Creation of a Factoring Unit (FU) – Invoices or Bills of Exchange are referred to as Factoring Units on the TReDS platform.
- FUs have to be accepted by the counterparty - buyer or the seller, as the case may be;
- Financiers active on the platform bid for financing the factoring units;
- Buyer or Seller has to select the best bid by any financier;
- After acceptance of bid, payment is made by the financier to the MSME seller at the agreed rate of financing / discounting;
- On due date the buyer makes the payment to the financier.
Major benefits of TReDS for MSMEs
- MSMEs not required to provide collateral for the financing
- No recourse on MSMEs (Sellers) in case of defaults
- MSMEs get working capital facilities at very competitive prices
- MSMEs receive payments from their buyers in time
MSMEs can visit this link https://m.rbi.org.in/scripts/FAQView.aspx?Id=132 on the website of Reserve Bank of India or the website of Receivable Exchange of India Limited (https://www.rxil.in) for further information and registration on TReDS platform.