TReDS

MSMEs are the backbone of the Indian economy, accounting for 38% of GDP, 40% of exports, and 45% of manufacturing output. Despite of this, they continue to face difficulties in obtaining adequate finance, as banks are frequently unwilling to lend or may lend at higher interest rates. Additionally, due to the long receivable cycle, the sector struggles in terms of trade receivables into liquid funds, resulting in mismanagement of working capital. TReDS is the solution.

Because everything is now done online, why not fundraising? TReDS (Trade Receivables Electronically Discounting System) is an electronic platform that enables invoice discounting via an auction mechanism to ensure Trade Receivables liquidity. The RBI also published guidelines for the Trade Receivables e-Discounting system.

There are several platforms available for getting invoices discounted, including TREDS (Invoicemart), Receivables Exchange India Ltd (RXIL), Mynd Solutions (M1 Exchange), and others. Any buyer or seller, including government departments and public sector undertakings, banks, NBFC factors, financial institutions, or other such entities, is eligible to register on the TReDS platform.

Many banks and financing companies are focusing on digitalized solutions, for which many banks have introduced digital bank accounts and added a large customer base in the most effective and cost-efficient way. Similarly, TReDS is a platform that enables bankers and financers to find high-quality assets in the MSME sector throughout the country at a low cost, time, and effort. While buyers and sellers can select from a wide range of invoice discounting quotes to meet their working capital needs.

Let’s try to understand this process with the help of an example, Gopu & Sons is a supplier of wheat And has entered into a contract with ITC to sell 1000 units @100 amounting to ₹1,00,000 on the credit of 90 days. As Gopu & Sons require funds for the requirement of working capital so, Gopu & Sons will register on any of the above-mentioned platforms let’s say Invoicemart then he will upload the invoice on the invoicemart website which will be then approved by the ITC to check the authenticity of the invoice. On such invoices, the NBFC Factors, Banks, and Financial Institutions will quote the discounting rates from which Gopu & Sons will select one. Assuming SBI’s offer was accepted, SBI will disburse the amount to Gopu & sons after deducting some charges generally 10% to 20% as service or factoring charges. After the maturity i.e. 90 days ITC will pay ₹1,00,000 to SBI.

This is how all the 3 parties are benefited from using these platforms.

Thank you.

Regards,

Aditya Belhe,

Kautilya,

IBS Mumbai. 

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