Trade Receivables Discounting System is a welcoming step by the RBI to regulate the trade receivables between MSMEs, large corporations and financiers. This is beneficial not just for these individual players, but for the entire economy of the nation.
To decrease the financing concerns faced by MSMEs in India, RBI introduced the concept of TReDS in 2014, an institutional mechanism for financing trade receivables on a secure digital platform. Trade Receivable Exchanges such as M1xchange, standardizes the process of funding MSMEs via Invoice Discounting.
TReDS addresses the gaps in MSME industry as enterprises face challenges in getting their payments on time, thus creating working capital discrepancies. TReDS is a timely and effective solution to drive the MSME sector to the next phase of Indian economy.
In the process of bill discounting, MSMEs (Supplier) can upload their invoices on any Trade Receivable Exchange of their choice. The invoice is then verified and approved by the Corporate (Buyer). After the invoice has been approved, the Financiers (NBFC/Banks) bid against the floated invoice. This unique bidding mechanism gives the supplier an option to select the most suitable bid. The exchange calculates the final transaction amount and funds get transferred from Financier's bank account to Supplier’s account. The amount is later paid to the financier by the buyer on the mutually agreed terms.
Since most of the data is up there in electronic memory storages, TReDS involves negligible paperwork. Other benefits include standardized practices, transparency, competitive discounting rates, centralized collection of all data, and most importantly easy access to funds.
- Trade receivable discounting platform approved by RBI.
- Payment is processed in T+1 day.
- Suppliers can choose the best factoring companies on parameters such as transparency, customer confidentiality, factoring rates and fees.
- Alternate, efficient funding system for making vendor payments.
- Quick finance of trade receivables at moderate rates.
- Financiers can fulfil PSL targets efficiently in less time.