How MSMEs can get cash against unpaid invoices online? Check more details on TReDS here

Credit and finance for MSMEs: To address lack of working capital issue among MSMEs, the RBI in 2014 introduced Trade Receivables Discounting System (TReDS) for financing trade receivables from corporate and other buyers including government departments and public sector units through multiple financiers.

Written by MSME Desk

April 18, 2023 18:47 IST

treds, trade receivables, invoice discounting, bill discounting, factoring, rxil, invoicemart, m1xchange, rbi, central bank, reserve bank of india

As of February 2023, 54.56 lakh invoices involving Rs 1.42 lakh crore were financed by TReDS platforms.

Credit and finance for MSMEs: Despite the role played in the economic growth of the country, the availability of adequate finance remains a constraint for MSMEs, particularly in terms of their ability to convert their trade receivables or bills into liquid cash or funds. To address this issue by financing trade receivables from corporate and other buyers including government departments and public sector units through multiple financiers, the Reserve Bank of India (RBI) introduced Trade Receivables Discounting System (TReDS) back in 2014.

In 2017, the central bank issued licenses to three non-bank companies M1xchange, Invoicemart (a joint venture of Axis Bank and mjunction services), and RXIL (a joint venture between SIDBI and NSE) to operate on the TReDS mechanism for financing trade receivables through multiple financiers. The RBI approved the fourth entity – the global on-demand working capital platform C2FO to set up and operate an invoice discounting platform under TReDS in November 2022.

Also read: RBI’s TReDS financed this many MSME invoices involving Rs 1.42 lakh crore till Feb 2023

As of February 2023, 54.56 lakh invoices involving Rs 1.42 lakh crore were financed by TReDS platforms, according to the data shared by Bhagwat Karad, minister of state in the finance ministry informed Lok Sabha in a written reply to a question in March. Here’s how an MSME can get on a TReDS platform and receive quick funds against their invoices:

How many parties are involved in an invoice discounting process?

There are three parties involved in discounting a bill or invoices – seller which is an MSME selling its invoices, buyer which are corporates, government departments or public sector units buying the invoices and financiers which are banks or NBFCs to finance the invoices.

How invoice discounting work online?

An invoice discounting or factoring process on TReDS begins with the seller uploading his/her invoice and gets listed as a factoring unit (FU) on the portal platform. The FU is then accepted by one of the buyers who send it to financiers for bidding. The sellers select the bid and receive money up to 80-90 per cent of the invoice value from the financier at the agreed rate of financing. On the due date of payment, the buyer pays the financier.

What is a factoring unit?

An FU is basically a standard nomenclature used in TReDS for invoices or bills of exchange containing details related to the sale of goods or services.

Also read: Insurance companies can now participate in TReDS: RBI

Which MSMEs are eligible to sell their bills online?

Manufacturing or services units with investment in plant and machinery up to Rs 50 crore and turnover not more than Rs 250 crore as per the revised MSME definition in 2020 are eligible to participate.

Does TReDS guarantee the financing of invoices?

TReDS doesn’t guarantee to invoice as it depends on bid offering by financiers and acceptance by the seller apart from the settlement of the obligation by the participants.

Is registration required on TReDS to discount invoices?

Yes, MSME needs to register itself with required documents such as a master agreement (between TReDS user and TReDS), business certificate, all KYC documents, board resolution, balance sheet, etc.

How much time is required for the invoice to be discounted?

Usually, it takes just 2-3 days for MSMEs to receive early payment against their invoices.