The Trade Receivables Discounting System (TReDS) is an electronic platform developed by the Reserve Bank of India (RBI) to facilitate the financing and discounting of trade receivables of Micro, Small, and Medium Enterprises (MSMEs) through multiple financiers.
The main purpose of TReDS is to provide a platform for MSMEs to access financing for their trade receivables, which can be due from corporates, other buyers, government departments, and public sector undertakings (PSUs). TReDS simplifies the process of uploading, accepting, discounting, trading, and settling invoices and bills of MSMEs.
The key benefits of TReDS include:
Improved cash flow: TReDS enables MSMEs to access financing for their trade receivables, improving their cash flow and financial stability.
Competitive discount and interest rates: TReDS ensures that the discount and interest rates remain competitive, providing MSMEs with better financing options.
No collateral required: Financing is offered on the invoices, and no collateral is required.
Shorter cash cycle times: TReDS reduces cash cycle times, allowing suppliers to get immediate access to operating capital and shorten the financial cycles of their companies.
Support for entrepreneurial development: With quick access to money, MSMEs can expand their operations and increase profits.
No effect on the balance sheet: TReDS is designed to speed up the cash flow without disturbing the balance sheet.
TReDS works by enabling the following processes:
Invoice/bill uploading: MSMEs can upload their invoices on any TReDS platform of their choice.
Corporate buyer verification: The invoice is then verified and approved by the corporate buyer.
Financier bidding: After the invoice is approved, financiers (NBFCs/banks) bid against the uploaded invoice, giving the supplier an option to select the most suitable bid
Transaction amount calculation: The exchange calculates the final transaction amount, and funds get transferred from the financier's bank to the MSME's bank.
TReDS benefits various parties involved, such as MSMEs, corporates, and financiers. MSMEs can access financing for their trade receivables, improving their cash flow and financial stability.
Corporations can save on procurement costs through improved negotiation of financing terms for their vendors. Financiers can build a portfolio of trade receivables, which can be a source of passive income.
There are currently three authorized TReDS platforms registered with the Reserve Bank of India (RBI) for operating as a TReDS platform:
A TREDS Ltd (Known as Invoicemart): This platform is owned by the Bank of Maharashtra.
Receivables Exchange of India Ltd (RXIL): This platform is owned by the National Stock Exchange of India (NSE).
Mynd Solutions (Known as M1 exchange): This platform is owned by Mynd Solutions.
These platforms facilitate the financing and discounting of trade receivables of Micro, Small, and Medium Enterprises (MSMEs) through multiple financiers. MSMEs can access financing for their trade receivables, which can be due from corporates, other buyers, government departments, and public sector undertakings (PSUs).
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