What is RBI's TReDS and how SME can use it for invoice discounting?

What is RBI's TReDS and how SME can use it for invoice discounting?

To address the lack of working capital issue among MSMEs, the RBI in 2014 introduced Trade Receivables Discounting System (TReDS) for financing trade receivables from corporations and other buyers through multiple buyers

To address the lack of working capital issue among MSMEs, the RBI in 2014 introduced Trade Receivables Discounting System (TReDS) for financing trade receivables from corporations and other buyers through multiple buyers

In 2017, RBI issued licenses to three non-bank companies M1xchange, Invoicemart, and RXIL to operate on the TReDS mechanism for financing trade receivables through multiple financiers

In 2017, RBI issued licenses to three non-bank companies M1xchange, Invoicemart, and RXIL to operate on the TReDS mechanism for financing trade receivables through multiple financiers

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

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

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

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

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

On the due date of payment, the buyer pays the financier

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

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

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

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

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.

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.

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

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

Image: Pexels

Image: Pexels