Trade Receivables Discounting System (TReDS)

Trade Receivables Discounting System (TReDS) - An Introduction

The RBI launched the Trade Receivables Discounting System in 2018. Small businesses may benefit from the platform today more than ever before.

Trade Receivables Discounting System (TReDs) is a Reserve Bank of India initiative to ensure timely payments to the suppliers (MSME Suppliers) which qualify as micro, small and medium enterprises (MSMEs) under the Micro, Small and Medium Enterprises Development Act, 2006. It is a digital platform for MSME Suppliers to auction/discount their trade receivables at competitive rates through online bidding.

It brings together the MSME Suppliers, Buyers (i.e. Corporates, Government Departments and Public Sector Undertakings) and Financiers (i.e. Banks, NBFCs and Financial Institutions) for facilitating uploading, accepting, discounting, trading and settlement of invoices/bills of exchange of MSME Supplier. The process involves uploading a valid invoice by the MSME Supplier on the TReDs Platform, and validation and approval of the invoice by the Buyer. Upon approval, various Financiers start to bid on the invoice at discounted rates. The MSME Supplier can exercise its discretion while accepting the bid and, upon acceptance, the payment is processed, and the MSME Supplier's account is credited with the discounted amount.

Micro, Small and Medium Enterprises (MSMEs) represent a significant part of the Indian economy and are one of the strongest drivers of economic development, innovation and employment.

Despite this sector’s vast potential, certain challenges are hampering its rapid growth. One of the challenges faced by MSMEs is the delayed payment from corporate buyers leading to a shortage of working capital for their regular business operations.

To address the financing related issues faced by MSMEs in India, RBI in 2014 introduced the concept of TReDS, a mechanism of trade receivables financing for MSMEs on a secure digital platform.

Three platforms were granted licenses by RBI to operate on the TReDS mechanism in 2017, including Mynd Solutions’ M1Xchange, Invoice mart (a joint venture between mjunction services and Axis Bank), and RXIL (a joint venture between NSE and SIDBI) on which registration can be made: