The Trade Receivables Discounting System (TReDS) is an online platform introduced by the Reserve Bank of India (RBI) to help Micro, Small, and Medium Enterprises (MSMEs) get quicker payments for their invoices. It enables MSMEs to sell their unpaid invoices to financiers (banks and NBFCs) at a discount, ensuring faster cash flow.
Eligible Entities
The TReDS platform allows different participants for facilitating, uploading, accepting, discounting, trading and settlement of the invoices/ bills of MSMEs as observing the below following.
| MSME Suppliers | Buyers | Financiers |
| Supplying goods or services to Buyers |
|
|
As per the provisions of the Reserve Bank of India (RBI), only MSMEs (micro, small, and medium enterprises) can compete as sellers while NBFCs, banks and factoring companies are financiers. TReDS transactions can be initiated by both the seller and the buyer for the financing of trade receivables of MSME sellers. When the invoices are uploaded by the MSME seller and bear the interest cost, it is defined as “Factoring,” i.e. (Single Seller to Multiple Buyers). In the case of “Reverse Factoring” single buyer initiates the transaction, and the buyer also bears the interest cost.
How TReDS Works
- MSME Supplies Goods/Services → The MSME delivers goods/services to a large corporate or government entity.
- Invoice Uploaded on TReDS → The MSME or the corporate buyer uploads the invoice on the TReDS platform.
- Financiers Bid for Discounting → Banks and NBFCs bid to purchase the invoice at a discounted rate.
- MSME Receives Payment → The MSME receives the discounted payment immediately.
- Buyer Pays Later → The corporate buyer pays the full invoice amount to the financier on the due date.
Benefits of TReDS
All Participants
- Automated transparent platform
- Paperless and hassle-free process
- Cost Reduction
- Low administrative and operational cost
- Faster transaction and low turnaround time for financing
Benefits to Buyers
- Compliance with MSMED Act, 2006
- Competitive price discovery through auction
- Lower supply chain cost for buyers
- Help efficient cash-flow management
Benefits to Sellers
- Competitive price discovery
- Without recourse to the seller
- MSMEs have the right to determine the best bid
- Payment received on T+1 on the successful auction
- No follow-up with the buyers
Benefits to Financiers
- Priority sector lending benefits
- Lower cost for new customer acquisition
- Cross-selling products.
Benefits to MSME vendors
- Competitive price discovery through auction.
- Lower cost of financing as financing based on buyer’s credit profile.
- Immediate payment against trade receivables.
- Without recourse to MSME vendors.
- No follow-ups for payment
- Efficient working capital management due to improved liquidity.
- Widening financing options for MSME vendors.
FAQs
Who Can Use TReDS?
- MSMEs (Sellers)
- Large Corporates, PSUs, Government Departments (Buyers)
- Banks & NBFCs (Financiers)
What are Discount Rates?
There are various rules and guidelines to safeguard the interests of all individuals. The below following are the two RBI-approved online marketplaces (TReDSs).
- RXIL (India’s first TReDS platform established by SIDBI in partnership with NSE and three banks (SBI, ICICI Bank and YES Bank) and
- A TREDS (a joint venture of Axis Bank and junction service)