{"id":2119,"date":"2026-10-26T14:46:40","date_gmt":"2026-10-26T14:46:40","guid":{"rendered":"https:\/\/www.m1xchange.com\/thought-xchange\/?p=2119"},"modified":"2026-10-26T14:46:42","modified_gmt":"2026-10-26T14:46:42","slug":"direct-settlement-on-treds-what-section-15a-of-the-msmed-amendment-act-2026-means-for-cpses","status":"publish","type":"post","link":"https:\/\/www.m1xchange.com\/thought-xchange\/direct-settlement-on-treds-what-section-15a-of-the-msmed-amendment-act-2026-means-for-cpses\/","title":{"rendered":"Direct Settlement on TReDS: What Section 15A of the MSMED Amendment Act 2026 Means for CPSEs"},"content":{"rendered":"\n<p>The settlement of MSME invoices is no longer simply a matter of managing payment due dates for Central Public Sector Enterprises (CPSEs). It is becoming a statutory compliance responsibility, with TReDS at the centre of how eligible supplier payments are routed and recorded.<\/p>\n\n\n\n<p>The MSMED (Amendment) Act, 2026 introduces Section 15A, establishing a legal basis for mandatory routing of specified CPSE payments to micro, small and medium enterprises through the Trade Receivables Discounting System (TReDS).<\/p>\n\n\n\n<p>The change is significant because routing an invoice through TReDS does not mean that the invoice must be discounted. An invoice can pass through the platform and be paid by the CPSE directly to the supplier on its contractual due date, without a financier funding the transaction.<\/p>\n\n\n\n<p>This arrangement is commonly described in the industry as Direct Settlement.<\/p>\n\n\n\n<p>For CPSE finance, procurement and accounts payable teams, the practical implications extend beyond the payment method. Invoice acceptance, supplier onboarding, payment instructions, reconciliation and annual reporting must now be considered together.<\/p>\n\n\n\n<p>The distinction matters equally for MSME suppliers. They can continue to seek early payment through invoice discounting where available, but the mandatory routing framework does not guarantee early liquidity.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Why the 2026 Amendment Matters for India&#8217;s MSME Payment Ecosystem<\/strong><\/h2>\n\n\n\n<p>The scale of the policy change becomes clearer when viewed against India&#8217;s MSME base.<\/p>\n\n\n\n<p>According to the Ministry of MSME, Udyam registrations increased from 1.65 crore in April 2023 to 5.5 crore by October 2026. The ministry also reported that the MSME sector supports employment for more than 38 crore people.<\/p>\n\n\n\n<ul>\n<li>Udyam registrations<\/li>\n\n\n\n<li><strong>5.5 Cr<\/strong><\/li>\n<\/ul>\n\n\n\n<p>Reported August 2026<br>MSME employment<br><strong>38 Cr+<\/strong><\/p>\n\n\n\n<p>People supported by the sector<\/p>\n\n\n\n<p>For suppliers selling to CPSEs, the financial problem is often not limited to the amount of money owed. It also involves the visibility of an invoice after submission, the time required for acceptance and the predictability of settlement.<\/p>\n\n\n\n<p>A purchase order may have been fulfilled and the invoice submitted, but the supplier still needs to know whether it has been accepted, when payment is due and how that payment will be processed.<\/p>\n\n\n\n<p>Section 15A and the preceding June notification move CPSE invoice settlement towards a common, regulated electronic channel.<\/p>\n\n\n\n<p>The potential impact is threefold: better transaction visibility for suppliers, a more structured settlement process for CPSEs and a clearer opportunity to distinguish invoices that require early financing from those that only require payment on the agreed due date.<\/p>\n\n\n\n<p>These are expected operational benefits, not guarantees that every invoice will be accepted or paid without delay.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Section 15A: The Regulatory Timeline CPSEs Need to Understand<\/strong><\/h2>\n\n\n\n<p>The 2026 framework developed through three separate regulatory steps.<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td><strong>Date<\/strong><\/td><td><strong>Regulatory development<\/strong><\/td><td><strong>Significance<\/strong><\/td><\/tr><tr><td>23 June 2026<\/td><td>RBI TReDS Master Direction<\/td><td>Consolidated the regulatory framework governing TReDS platforms and participants<\/td><\/tr><tr><td>30 June 2026<\/td><td>Ministry of MSME notification, S.O. 3507(E)<\/td><td>Required operating CPSEs to route MSME invoice settlement through RBI-authorised TReDS platforms<\/td><\/tr><tr><td>3 August 2026<\/td><td>Rajya Sabha passed the MSMED Amendment Bill<\/td><td>Parliamentary approval<\/td><\/tr><tr><td>7 August 2026<\/td><td>Lok Sabha passed the Bill<\/td><td>Completed parliamentary passage<\/td><\/tr><tr><td>13 August 2026<\/td><td>MSMED (Amendment) Act, 2026, Act No. 16 of 2026<\/td><td>Received presidential assent and introduced Section 15A into the legislative framework<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p>(*<em>The dates and measures are supported by the Gazette records and the Ministry of MSME&#8217;s parliamentary announcement.<\/em>)<\/p>\n\n\n\n<p>An important legal distinction is that the Amendment Act provides for commencement on a date notified by the Central Government. Presidential assent alone does not establish that every provision commenced on 13 August. The June notification independently established the CPSE routing requirement; the commencement status of Section 15A should be confirmed against any subsequent commencement notification.<\/p>\n\n\n\n<p>Section 15A also permits the Central Government to extend the routing requirement to other notified authorities or entities and allows state governments to specify relevant state public sector enterprises or other bodies. That creates a statutory framework capable of extending beyond CPSEs, but does not automatically make every such entity subject to the requirement.<\/p>\n\n\n\n<p>The RBI&#8217;s June 2026 Master Direction serves a different purpose. It governs TReDS platform operations, including the regulatory framework for financing transactions. It is not the legal instrument that independently created the CPSE settlement mandate.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>What Is Direct Settlement on TReDS?<\/strong><\/h2>\n\n\n\n<p>Direct Settlement refers to the settlement-only route in which an invoice is processed through a TReDS platform without being discounted by a financier.<\/p>\n\n\n\n<p>The CPSE pays the MSME supplier directly at the agreed due date. Under the workflow described in the brief, the payment is executed through NACH, with the supplier receiving the full invoice value.<\/p>\n\n\n\n<p>No financier bids for the invoice, no early financing is provided, and no discounting charge is deducted.<\/p>\n\n\n\n<p>The term Direct Settlement is industry terminology. It is not the statutory name of the mechanism.<\/p>\n\n\n\n<p>This distinction is essential because TReDS has traditionally been associated with early payment through <a href=\"https:\/\/www.m1xchange.com\/bill-discounting\/\"><strong>invoice discounting<\/strong><\/a>. The 2026 CPSE framework requires a broader understanding of the platform: an invoice may be routed through TReDS whether or not the supplier chooses to finance it.<\/p>\n\n\n\n<p>The June 2026 notification expressly preserves the supplier&#8217;s option to avail or decline discounting.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>How Direct Settlement Works: From Invoice Acceptance to Payment<\/strong><\/h2>\n\n\n\n<p>Consider a CPSE procuring engineering components worth \u20b925 lakh from an MSME manufacturer.<\/p>\n\n\n\n<p>The supplier delivers the components, submits the invoice and completes the required documentation. The CPSE verifies the supply and accepts the invoice for payment.<\/p>\n\n\n\n<p>The transaction can then follow the settlement-only route:<\/p>\n\n\n\n<p>1. Invoice submitted<\/p>\n\n\n\n<p>MSME supplier raises a \u20b925 lakh invoice<\/p>\n\n\n\n<p>2. CPSE accepts the invoice<\/p>\n\n\n\n<p>Payment obligation and due date are confirmed<\/p>\n\n\n\n<p>3. Direct Settlement route<\/p>\n\n\n\n<p>No financier bidding or invoice discounting<\/p>\n\n\n\n<p>4. Payment on the due date<\/p>\n\n\n\n<p>CPSE pays \u20b925 lakh to the supplier through the settlement workflow<\/p>\n\n\n\n<p>In this illustrative transaction, the supplier does not receive payment ahead of schedule. The commercial credit period remains unchanged.<\/p>\n\n\n\n<p>What changes is the channel through which the invoice is routed and its settlement recorded.<\/p>\n\n\n\n<p>For a CPSE processing invoices across multiple departments, plants or regional offices, a structured settlement workflow may help improve transaction tracking and reconciliation. Realising that benefit will depend on how well the TReDS platform is integrated with the CPSE&#8217;s existing finance and accounts payable processes.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Direct Settlement vs Invoice Discounting: What Changes for CPSEs and MSMEs?<\/strong><\/h2>\n\n\n\n<p>Although both routes use TReDS, they serve different financial purposes.<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td><strong>Parameter<\/strong><\/td><td><strong>Standard Invoice Discounting<\/strong><\/td><td><strong>Direct Settlement<\/strong><\/td><\/tr><tr><td>Primary purpose<\/td><td>Early liquidity for the MSME supplier<\/td><td>Settlement of the invoice through TReDS<\/td><\/tr><tr><td>Financier participation<\/td><td>Yes<\/td><td>No<\/td><\/tr><tr><td>Competitive bidding<\/td><td>Yes<\/td><td>No<\/td><\/tr><tr><td>Supplier payment<\/td><td>Before the contractual due date, upon successful financing<\/td><td>On the contractual due date<\/td><\/tr><tr><td>Payment amount<\/td><td>Discounted invoice proceeds<\/td><td>Full invoice value<\/td><\/tr><tr><td>Discounting charge<\/td><td>Applicable<\/td><td>None<\/td><\/tr><tr><td>Who initially pays the supplier?<\/td><td>Participating financier<\/td><td>CPSE<\/td><\/tr><tr><td>Who pays at maturity?<\/td><td>Buyer pays the financier<\/td><td>CPSE pays the supplier<\/td><\/tr><tr><td>Is discounting compulsory?<\/td><td>No, supplier may opt for financing<\/td><td>No discounting occurs<\/td><\/tr><tr><td>CPSE routing requirement<\/td><td>Invoice can follow this route<\/td><td>Provides a settlement-only route to meet the routing requirement<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p>The central distinction is straightforward.<\/p>\n\n\n\n<p>Invoice discounting addresses the supplier&#8217;s need for early working capital. Direct Settlement addresses the requirement to route and settle the invoice through TReDS without financing it.<\/p>\n\n\n\n<p>The CPSE&#8217;s mandatory obligation concerns the routing of settlement. It does not compel the supplier to incur discounting costs.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>What the New Framework Means for CPSE Finance and Procurement Teams<\/strong><\/h2>\n\n\n\n<p>For CPSEs, the immediate challenge is operational readiness.<\/p>\n\n\n\n<p>A settlement mandate cannot be addressed through platform registration alone. The organisation must also ensure that its invoice processing, payment approvals and financial controls can support TReDS-based settlement consistently.<\/p>\n\n\n\n<p><strong>Four areas deserve particular attention.<\/strong><\/p>\n\n\n\n<p><strong>1. Supplier onboarding and invoice mapping<\/strong><\/p>\n\n\n\n<p>CPSEs need to identify MSME suppliers covered by the requirement, establish the relevant TReDS onboarding arrangements and ensure that supplier records are correctly mapped to invoice and payment systems.<\/p>\n\n\n\n<p>This becomes particularly important where procurement is decentralized across factories, project sites and regional offices.<\/p>\n\n\n\n<p><strong>2. Timely invoice acceptance<\/strong><\/p>\n\n\n\n<p>Routing invoices through TReDS does not eliminate the need for verification.<\/p>\n\n\n\n<p>Purchase order matching, goods receipt confirmation, invoice validation and discrepancy resolution remain essential. Delays in these activities can postpone settlement readiness even when the payment platform is operational.<\/p>\n\n\n\n<p>Procurement, finance and accounts payable teams therefore need clear ownership of each approval stage.<\/p>\n\n\n\n<p><strong>3. Settlement reconciliation<\/strong><\/p>\n\n\n\n<p>Finance teams must be able to distinguish discounted invoices from those following Direct Settlement.<\/p>\n\n\n\n<p>This distinction affects payment instructions and reconciliation. A discounted invoice creates a payment obligation to the financier at maturity, while a Direct Settlement transaction requires payment to the MSME supplier.<\/p>\n\n\n\n<p>Appropriate controls are needed to prevent duplicate payments and ensure that each invoice is settled through the correct route.<\/p>\n\n\n\n<p><strong>4. Statutory audit and reporting<\/strong><\/p>\n\n\n\n<p>The June 2026 notification requires CPSEs to disclose details of MSME invoices routed and settled through TReDS in the form and manner specified by the RBI.<\/p>\n\n\n\n<p>It also requires a statutory auditor&#8217;s certificate confirming registration with at least one TReDS platform and compliance with the notification during the annual statutory audit.<\/p>\n\n\n\n<p>This makes documentation and transaction traceability particularly important.<\/p>\n\n\n\n<p>CPSEs should be able to establish which invoices were routed, which were discounted, which were directly settled and whether the relevant settlement records are complete.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>What Direct Settlement Means for MSME Suppliers<\/strong><\/h2>\n\n\n\n<p>For MSME suppliers, the most important benefit is the opportunity for greater visibility over invoices payable by CPSE customers.<\/p>\n\n\n\n<p>A structured electronic settlement process can help suppliers track accepted receivables and distinguish between invoices awaiting maturity and those selected for early financing.<\/p>\n\n\n\n<p>However, Direct Settlement should not be confused with faster payment.<\/p>\n\n\n\n<p>If an MSME has a \u20b910 lakh invoice payable after 30 days, Direct Settlement does not automatically release that amount immediately. The supplier receives payment on the applicable due date.<\/p>\n\n\n\n<p>If the business needs working capital earlier, it can explore invoice discounting through TReDS, subject to transaction eligibility and financier participation.<\/p>\n\n\n\n<p>This flexibility is particularly relevant for suppliers managing several CPSE contracts simultaneously.<\/p>\n\n\n\n<p>A manufacturer may have sufficient liquidity to wait for payment against one invoice but need immediate funds against another to procure materials for a new order.<\/p>\n\n\n\n<p>The two routes allow the supplier to distinguish between a payment collection requirement and a financing requirement.<\/p>\n\n\n\n<p><strong>The Wider Impact: From Payment Routing to Better Receivables Management<\/strong><\/p>\n\n\n\n<p>The longer-term significance of Section 15A lies in how CPSE invoice settlements may become more structured and traceable.<\/p>\n\n\n\n<p>For large procurement organisations, invoice management often involves multiple systems, approval authorities and payment schedules.<\/p>\n\n\n\n<p>A common electronic settlement channel can create opportunities for improved reconciliation, more consistent reporting and better visibility into outstanding MSME payables.<\/p>\n\n\n\n<p>For suppliers, the benefit is a clearer distinction between invoices awaiting payment and receivables that may be eligible for financing.<\/p>\n\n\n\n<p>There is also a potential benefit for the wider TReDS ecosystem.<\/p>\n\n\n\n<p>As more CPSE procurement invoices are routed through authorised platforms, more MSME suppliers may become familiar with digital receivables management. Some may subsequently choose invoice discounting when they need working capital before the payment due date.<\/p>\n\n\n\n<p>This does not mean that mandatory routing will automatically increase financing volumes. Financing remains optional and subject to eligibility, pricing and financier participation.<\/p>\n\n\n\n<p>The policy&#8217;s immediate impact is on settlement infrastructure. Its wider financial impact will depend on adoption, operational execution and suppliers&#8217; decisions to use available financing options.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>How M1xchange Can Support CPSEs and MSME Suppliers<\/strong><\/h2>\n\n\n\n<p>As an RBI-authorised TReDS platform, M1xchange provides an established digital environment connecting MSME suppliers, buyers and participating financiers.<\/p>\n\n\n\n<p>For CPSEs, the new settlement requirement creates a need to review TReDS registration, invoice acceptance workflows, payment routing and reconciliation processes.<\/p>\n\n\n\n<p>For MSME suppliers, TReDS provides access to an electronic receivables-financing mechanism through which eligible buyer-approved invoices can be offered for competitive financier bidding.<\/p>\n\n\n\n<p>Where Direct Settlement is supported and enabled under the applicable platform arrangements, invoices that are not discounted can follow the settlement-only route.<\/p>\n\n\n\n<p>The objective is to make the distinction between financing and settlement clear while supporting compliance with the applicable regulatory framework.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Frequently Asked Questions<\/strong><\/h2>\n\n\n\n<p><strong>Is TReDS mandatory for CPSEs under the 2026 framework?<\/strong><\/p>\n\n\n\n<p>Yes. The Ministry of MSME&#8217;s June 2026 notification requires operating CPSEs to route settlement of invoices for procurement from MSMEs through RBI-authorised TReDS platforms. Section 15A provides a corresponding statutory framework, subject to its notified commencement.<\/p>\n\n\n\n<p><strong>Does mandatory TReDS settlement mean mandatory invoice discounting?<\/strong><\/p>\n\n\n\n<p>No. The June notification expressly states that routing does not require discounting. MSME suppliers retain the option to avail or decline financing.<\/p>\n\n\n\n<p><strong>Does Direct Settlement provide early payment?<\/strong><\/p>\n\n\n\n<p>No. Direct Settlement involves payment on the applicable due date without financier participation. Suppliers seeking early payment may explore invoice discounting separately.<\/p>\n\n\n\n<p><strong>Is there a discounting charge under Direct Settlement?<\/strong><\/p>\n\n\n\n<p>No, financier discount is not deducted because the invoice is not financed. Any separate platform or transaction charges, if applicable, should be checked against the relevant platform terms.<\/p>\n\n\n\n<p><strong>Are CPSEs required to provide annual compliance certification?<\/strong><\/p>\n\n\n\n<p>Yes. The June notification requires statutory auditor certification of TReDS registration and compliance during the annual statutory audit.<\/p>\n\n\n\n<p>Explore TReDS solutions with M1xchange to understand the settlement and receivables-financing options relevant to your organisation.<\/p>\n","protected":false},"excerpt":{"rendered":"<div class=\"tmnf_excerpt\">The settlement of MSME invoices is no longer simply a matter of managing payment due dates for Cent\u2026<\/div>","protected":false},"author":1,"featured_media":2120,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[69],"tags":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v22.8 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Direct Settlement on TReDS: Section 15A Explained for CPSEs<\/title>\n<meta name=\"description\" content=\"Understand Section 15A of the MSMED Amendment Act 2026, mandatory CPSE invoice 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