Summary: The Ministry of Micro, Small and Medium Enterprises (MSME) has mandated that all companies with a turnover exceeding Rs. 250 crore and Central Public Sector Enterprises (CPSEs) must register on the Trade Receivables Discounting System (TReDS) platform by March 31, 2025. Launched by the Reserve Bank of India (RBI) in 2014, TReDS enables MSMEs to unlock working capital by selling their receivables to financiers at discounted rates, offering a quicker alternative to waiting for buyer payments. MSMEs, including micro, small, and medium enterprises as defined under the Companies Act, are eligible to join. The platform connects MSMEs with corporates, PSUs, and government departments to address long-standing cash flow issues faced by smaller businesses. The system facilitates invoice uploading, buyer approval, and financier bidding, with payments made directly to the financier on the due date. It is a non-recourse system, meaning MSMEs are not liable for repayment in case of buyer default. With RBI-approved platforms such as RXIL, M1xchange, and Invoicemart, the initiative aims to empower MSMEs by improving access to finance and promoting business growth. By expanding participation, TReDS will support the resilience and economic health of MSMEs across India.
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TReDS Platform and Its Implications
The Ministry of Micro, Small and Medium Enterprise has recently vide its notification dated November 07, 2024, made it mandate for all the companies registered under the Companies Act, 2013 with a turnover of more than Rs. 250 crore (Two Hundred and Fifty Crore Rupees) and all Central Public Sector Enterprises to get themselves onboarded on the Trade Receivables Discounting System Platforms, set up in accordance with the guidelines of the Reserve Bank of India.
Accordingly, the said companies and central public sector enterprises required to onboarding itself on the TReDS platforms by March 31st, 2025
About TReDS Platform
In the year 2014, the Reserve Bank of India launched the Trade Receivables Discounting System (TReDS) platform facilitating the financing via discounting of trade receivables of Micro, Small and Medium Enterprises (MSMEs) due from corporates and other buyers, including Government Departments and Public Sector Undertakings (PSUs) through multiple financiers.
Purpose of TReDS Platform
This platform was created to assist the Micro, Small and Medium Enterprise to unlock working capital by converting their trade receivables into immediate cash rather than prolonged waiting for payments from the Buyer.
This initiative supports MSMEs in growing and expanding their businesses, addressing a longstanding challenge that hinders their growth potential.
Who Qualifies as an MSME?
An MSME is an entity involved in manufacturing goods or providing services and must meet the following criteria:-
(a) Micro:- Investment in Plant and Machinery or Equipment is not more than Rs.1 crore and Annual Turnover not more than Rs. 5 crore;
(b) Small:- Investment in Plant and Machinery or Equipment is not more than Rs.10 crore and Annual Turnover not more than Rs. 50 crore;
(c) Medium:- Investment in Plant and Machinery or Equipment is not more than Rs.50 crore and Annual Turnover not more than Rs. 250 crore.
Calculation
Investment in Plant and Machinery or Equipment: – will be linked to the Income Tax Return (ITR) of the previous years filed under the Income Tax Act, 1961.
In case of New Enterprise, where no ITR is available: – the investment will be based on self-declaration of the promoter of the enterprise and such relaxation shall end after the 31st March of the financial year in which it files its first ITR.
Turnover: – will be linked to the Income Tax Act or the Central Goods and Services Act (CGST Act) and the GSTIN (While computing the turnover exports of goods or services shall be excluded.)
Mandatory Registration on TReDS
Entities required to register on TReDS include:
- Companies with a turnover of more than ₹250 Crore
- Central Public Sector Enterprises
TReDS Platforms for Registration
RBI has approved the following platforms for TReDS Registration:
- Receivables Exchange of India (RXIL);
- M1xchange; and
- Invoicemart
How does TReDS platform works
- Registration: MSMEs register on the platform.
- Invoice Uploading: MSMEs selling goods or services upload their invoices to the platform.
- Buyer Approval: Buyers accept the invoices uploaded by MSMEs.
- Financier Bidding: Financiers bid on the invoices, offering a discount. The MSME seller can accept the best bid to receive funds faster than waiting for traditional payments.
- Buyer Payment: On the due date, the buyer pays the financier directly.
This financing is done “without recourse,” meaning that if the buyer defaults on payment, the MSME seller is not obligated to repay the financier.
Conclusion
The TReDS platform empowers MSMEs by providing quicker access to working capital, enabling them to thrive and grow 🌟 in a competitive market. By onboarding more companies, this platform will further contribute to the economic health and resilience of MSMEs across India.
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