Better Measure for cash flow problems for MSMEs in Lockdown scenario- TReDS- Trade Receivable Discounting System

India is in lockdown from over 68 days due to COVID 19 situation and lockdown has depicted the big impact on the economy of India. Since lockdown, no business activity has happened except some essential businesses, so MSME sector has impacted very well. Major problem of MSMEs is ‘cash flow’ to keep going its business for long run and to maintain liquidity in its business.

“On 2nd November, 2018 the Ministry of MSME issued a notification to the organizations having annual turnover of over Rs. 500 crore. In the notification the Ministry has made it mandatory for such companies to register themselves on an RBI approved TReDS platform.”

What is TReDS?

TReDS(Trade receivable Discounting System) is an electronic platform that allows businesses to auction trade receivables such as invoices, and the platform serves as a transparent and quick medium for the MSME vendors to avail funds at cheaper rates through banks and factoring companies.In this, a business owner can sell a bill (invoice) to a financier( a bank or another financial institution) which is due to be a paid at a future date. So, in other words, they get credit (funds) on the basis of the invoice and start working with other client without any cash flow problems.

Process of bill discounting on a TReDS platform – Factoring?

There is a step- by step process in this system:

  • Supplier supplies  the goods or services
  • Supplier logs in on the platform and uploads the invoice for Receivables
  • Buyer verifies and approves the invoice
  • The invoice is converted into Factoring Units for bidding
  • Financiers bid against the Factoring units
  • Supplier accepts the most Favourable bid
  • Platform generates settlement instructions for debiting the financier and crediting the Supplier
  • Platform settlement instructions for debiting the buyer crediting the financier

Key Benefits for MSMEs from TReDS

  • TReDS helps a supplier to realize payment against an invoice raised to a buyer, through a financier at discounted rates, in significantly less number of days as compared to the buyer company’s regular credit period timelines. Here are some of the key benefits of TReDS for MSMEs
  • Get easy and quick working capital at much cheaper interest rates as compared to business loans.
  • Enjoy collateral-free quick finance with one time documentation
  • Get paid for your invoices next day after acceptance of discounted amount.
  • Obtain off-balance sheet finance, the amount does not reflects as a loan in your balance book.
  • Maintain a regular cash flow and grow your business

Currently there are three TReDS platform in India which are operating under RBI guidelines.

1. M1xchange

2. A. Treds

3. Receivable exchange of India

Now TReDS can become the biggest reformer to our economy at present scenario. It will give timely money to MSMEs to maintain the Local market.

Share and give comments and try to do more discussion to spread the knowledge of TReDS in India.

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Author Bio

Qualification: CA in Practice
Company: Goyal Kumar & Co.
Location: Agra, Uttar Pradesh, IN
Member Since: 20 May 2020 | Total Posts: 2
Having an articleship experience with Chartered Accountant Firm for 2 years working on Direct Tax and Indirect Tax, Statutory Audit and Internal Audit and Other compliance work and 1 Year of Industrial Trainee in PSU company Bharat Heavy Electricals Limited, Bhopal working in Foreign Purchase Depart View Full Profile

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  1. Subramanian Natarajan says:

    Brilliant article.As rightly pointed out procedure for registration is simple but PSE s do not move and are chalta hai mood. My research over 104 articles in taxguru indicates we should learn to be time bound and if I can act now let it be done. Nearly 25 of my articles came in last two months. I want all, including seniors shouldering important positions in private sector also work honestly. Maximum money has been diverted by private sector enterprise through banks. Just now Rs 3500 cr diversion in a good park in a NCLT case was read by me. Let us produce for our kids, grands and our nation. Correct time to work. Let us be inspired by M S Dhoniji our hero.

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April 2021