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What is TReDS?
Trade Receivables Discounting System is a welcoming step by the RBI to regulate the trade receivables between MSMEs, Large Corporates and Financiers. This is beneficial not just for these individual players, but for the entire economy of the nation. TReDS is an institutional mechanism set up in order to facilitate the discounting of trade receivables of MSMEs from corporate buyers through invoice discounting by multiple financiers. This step is deemed to augment the trade account receivable management of the micro small & medium enterprises.
Following are the Salient Features of TReDS
- Easy Access to Fund
- No paper Work
- Single Platform for sellers, Buyers and Financers
- Transact Online
- Competitive Discount Rates
- Seamless Data Flow
- Standardized Practices
Benefits of TReDS
- Easy Access to Working Capital
- Collateral Free Funding
- Get Funds in 24Hrs
- Seamless & Secure Digital Platform
- Faster Business Expansion & Growth
- Off Balance Sheet Bill Discounting
M1xchange TReDS
The Reserve Bank of India granted approval to Mynd Solutions Pvt Limited to set up and operate M1xchange, the first trade receivable exchange in India. M1xchange has digitally transformed the process of gaining access to working capital for MSMEs via invoice discounting through multiple financiers. TReDS is an answer to the everlasting cash flow issues of the MSMEs in India and effective solution to drive the MSME sector to the next phase of Indian economy.
On November 2, 2018 the Department of Micro, Small and Medium Enterprises issued a notification stating that all companies registered under Companies Act and having a turnover of more than INR 500 crores and all Central Public Sector Enterprises are required to on board a TReDS platform, thus making TReDS registration mandatory for such companies. The Registrar of Companies (RoC) in every state has been nominated to be the competent authority to monitor the compliance of this notification.
– MSMEs get greater access to finance, at competitive rates without providing any additional collateral. Also, the financing is without recourse to the MSMEs.
– Corporates save on procurement cost through an improved negotiation of financing term for its vendors.
– Financiers get an opportunity to build PSL asset portfolio on Trade Receivable Exchange platforms like M1xchange.
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Why TReDS?
Trade Receivables Discounting System is a welcoming step by the RBI to regulate the trade receivables between MSMEs, large corporates and financiers. This is beneficial not just for these individual players, but for the entire economy of the nation.
To decrease the financing concerns faced by MSMEs in India, RBI introduced the concept of TReDS in 2014, an institutional mechanism for financing trade receivables on a secure digital platform. Trade receivable exchanges such as M1xchange, are helping the MSME supplier get early payment against their invoices with minimum paperwork in just 2-3 days. Since invoice discounting on TReDS ensures regular payment and optimized cash flow, many MSMEs are now using TReDS as their preferred mode of payment.
TReDS addresses the gaps in MSME industry as enterprises face challenges in getting their payments on time, thus creating working capital discrepancies. TReDS is a timely and effective solution to drive the MSME sector to the next phase of Indian economy.
Business Transactions Boosted
In the process of bill discounting, MSMEs (Supplier) can upload their invoices on any Trade Receivable Exchange of their choice. The invoice is then verified and approved by the Corporate (Buyer). After the invoice is approved, the Financiers (NBFC/Banks) bid against the uploaded invoice. This unique bidding mechanism gives the supplier an option to select the most suitable bid. The exchange calculates the final transaction amount and funds get transferred from Financier’s bank account to the Supplier’s account. The amount is later paid to the financier by the buyer on the mutually agreed terms.
Since TReDS works in a digital ecosystem, the registration process involves one-time documentation only. All the data is stored in a secure digital format, thus the discounting process involves no paperwork on M1xchange.
Coming to the overall benefit of this system. Suppliers enjoy collateral-free without recourse financing at a rate much lower than a bank loan. The corporate buyers, on the other hand, get an extension on days payable helping them better manage their working capital. Since the corporates are enabling their MSME supplier to get paid in a matter of a few days, they are in a comfortable position to negotiate on the overall cost of procurement. Financiers can build quality PSL Asset portfolio in MSME space with reduced risk of default.
Why TReDS on M1xchange?
– RBI Regulated institutional mechanism.
– Funds get credited to the supplier account in T+1 day.
– Suppliers can choose the best factoring companies on parameters such as transparency, customer confidentiality, factoring rates and fees.
– Alternate, efficient funding system for making vendor payments.
– Quick finance of trade receivables at moderate rates.
– Financiers can fulfill PSL targets efficiently in less time.
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