What is TReDS?
TReDS (Trade Receivables Discounting System) is an electronic platform for facilitating the financing of trade receivables of Micro, Small, and Medium Enterprises (MSMEs) through multiple financiers. It was introduced by the Reserve Bank of India (RBI) to address the problem of delayed payments faced by MSMEs from large corporates and government departments. TReDS enables MSMEs to convert their trade receivables into liquid funds, thus improving their working capital cycle.
Key Features of TReDS
- Digital Platform: An online platform that connects MSMEs, corporates, and financiers for the purpose of discounting trade receivables.
- Multiple Financiers: MSMEs can access a wide range of financiers (banks and non-banking financial companies) to get their receivables discounted.
- Transparent Process: Ensures transparency in the process of invoice discounting and financing, with standardized procedures and timelines.
- Improved Cash Flow: Helps MSMEs manage their cash flow more effectively by converting receivables into immediate cash.
- Reduced Transaction Costs: Streamlines the financing process, reducing the transaction costs and the time taken to receive payments.
Benefits of TReDS
- Access to Finance: Provides MSMEs with easier access to working capital finance without the need for collateral.
- Competitive Rates: Enables MSMEs to get their receivables discounted at competitive rates through an auction process involving multiple financiers.
- Credit Risk Mitigation: The credit risk is transferred from the MSME to the buyer (corporate), improving the financing terms for the MSME.
- Timely Payments: Ensures timely payments to MSMEs, reducing the problem of delayed payments and improving their liquidity position.
- Transparency and Efficiency: The entire process is electronic, ensuring transparency and efficiency in the discounting and settlement process.
TReDS Platforms in India
- RXIL (Receivables Exchange of India Ltd): A joint venture between the National Stock Exchange (NSE) and the Small Industries Development Bank of India (SIDBI).
- Invoicemart: A joint venture between Axis Bank and mjunction services ltd.
- M1xchange: Operated by Mynd Solutions Pvt. Ltd.
How TReDS Works?
- Registration: MSMEs, corporates, and financiers register on the TReDS platform.
- Upload of Invoices: MSMEs upload their invoices on the TReDS platform, which are then accepted by the buyers (corporates).
- Bidding by Financiers: Financiers bid on the uploaded invoices, offering discount rates.
- Selection of Bid: MSMEs select the best bid (lowest discount rate) from the financiers.
- Disbursement of Funds: The selected financier disburses the discounted amount to the MSME.
- Repayment by Buyer: On the due date, the buyer pays the financier the invoice amount, completing the transaction.
Required Documents for TReDS Registration
- KYC Documents:
- For MSMEs: PAN Card, Aadhaar Card, GST Registration, and business registration documents.
- For Corporates: PAN Card, Certificate of Incorporation, GST Registration, and business registration documents.
- Financial Statements: Recent financial statements of the MSME or corporate.
- Bank Account Details: Bank account number and IFSC code for transaction purposes.
- Authorized Signatory Details: Details of the authorized signatories, including their identity and address proofs.
Conclusion
TReDS is a powerful tool for MSMEs to manage their working capital needs by enabling the quick and efficient discounting of trade receivables. By participating in TReDS, MSMEs can improve their liquidity position, reduce the problem of delayed payments, and access competitive financing options. For more detailed information or assistance with TReDS registration, feel free to contact us at ATHWISE Services Private Limited. Our expert consultancy team can guide you through the registration process and help you leverage the benefits of the TReDS platform.
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