TReDS is an institutional mechanism set up in order to facilitate the trade receivable financing of MSMEs from corporate buyers through multiple financiers. MSMEs, despite their important role in contributing to the Indian economy, continue to face constraints in obtaining adequate finance. One big factor which affects the ability of MSMEs to convert trade receivables into liquid funds are slow paying invoices. To address the concerns related to financing faced by MSMEs in India. RBI in 2014 introduced the concept of TReDS, a mechanism of trade receivables financing for MSMEs on a secure and digital platform.
Invoice discounting on TReDS involves three participants MSME Supplier, Corporate Buyer and Financier. The invoice is uploaded by either buyer or supplier depending on the method of discounting and is approved by the other party. Once the invoice is approved the financiers on the platform start to bid on the invoice. The supplier accepts the bid and the discounted amount is credited in its account in T+1 day, where T is the day of acceptance.
The Reserve Bank of India granted approval to Mynd Solutions Pvt Limited to set up and operate M1xchange, the first trade receivable exchange in India. M1xchange has digitally transformed the process of gaining access to working capital for MSMEs via invoice discounting through multiple financiers. TReDS is an answer to the everlasting cash flow issues of the MSMEs in India and effective solution to drive the MSME sector to the next phase of Indian economy.
However the benefit of TReDS is not only limited to the MSME Sector, it helps the corporate buyers to purchase goods and services from MSME suppliers. Since the MSMEs are immediately paid through the approved financiers, the corporates enjoy extended payment cycle. It also enables the corporate to better negotiate with their MSME suppliers on the procurement cost.
On November 2 2018 the Department of Micro, Small and Medium Enterprises issued a notification stating that all companies registered under Companies Act and having a turnover of more than INR 500 crores and all Central Public Sector Enterprises are required to on board a TReDS platform, thus making TReDS registration mandatory for such companies. The Registrar of Companies (RoC) in every state has been nominated to be the competent authority to monitor the compliance of this notification.
The Institute of Company Secretaries of India (ICSI) has received a communication from Ministry of Corporate Affairs (MCA) to advise Company Secretaries of such companies to ensure registration of such companies on the TReDS platform at the earliest and confirm compliance. To ease TReDS platform registration process, M1xchange has simplified the steps of on boarding. A user can simply fill a small form by clicking here and can register on TReDS platform with one time documentation.
- MSMEs get greater access to finance, at competitive rates without providing any additional collateral. Also, the financing is without recourse to the MSMEs.
- Corporates save on procurement cost through an improved negotiation of financing term for its vendors.
- Financiers get an opportunity to build PSL asset portfolio on Trade Receivable Exchange platforms like M1xchange.