Prompt cash flow forms the foundation on which the operations of businesses (particularly for Micro, Small, Medium Enterprises - MSMEs) are built upon. Trade Receivables Discounting System (TReDS) | TReDS platform is at the forefront of ensuring timely payments and liquidity for MSMEs. This blog will educate you about the TReDS concept, its advantages, part played by SBI Factors in nurturing businesses through this platform.

What Does TReDS Stand For?

TReDS means Trade Receivables Discounting System. It is an RBI approved electronic invoicing discounting system to enable the funding of trade receivable of MSMEs. TReDS assistance to MSME MSME can bill invoices and discount them on the respective TReDS platform, which in turn provides them ready access to funds.

What is the Concept of TReDS?

TReDS is the platform where MSMEs can discount their receivables of large buyers ensuring transparency and the ability to realise more from the receivables. This system enables:

Invoice Discounting Investment: MSMEs can directly turn to cash their trade receivables.

Liquidity Augmentation: The mechanism ensures the timely payment to MSMEs, improving their working capital.

Risk Mitigation: As the discounting is based on the buyer’s creditworthiness, the MSMEs face a lower risk of payment.

How Does TReDS Work?

In the TReDS platform there are three main entities involved: the buyer, the seller (MSME), and the financier. Here’s how it works:

1. Invoice Upload: The MSME uploads its invoices to the TReDS platform.

2. Buyer Approvals: The buyer approves the invoices, validating the transaction.

3. Financiers Bidding: Many financiers on the platform submit bids to discount the invoice at competitive rates.

4. Timely Payment: MSME receives the discounted amount immediately which provides the MSME liquidity on time.

5. Bye Buyer Repayment: Buyer pays the financier on the due date of the invoice.

TReDS (Trade Receivables Discounting System) RBI Approved Platform

The RBI has approved the following platforms for TReDS −

Receivable Exchange of India (RXIL)

M1Xchange

A TReDS Limited

These platforms offer seamless invoice discounting services to MSMEs.

Who is Eligible for TReDS?

Businesses accepted on the TReDS platform:

MSMEs: Vendor requires timely payment of goods and services.
Corporates and Government Departments: Purchasers of goods and services from MSMEs.
Financier: Banks and NBFCs providing funding by discounting invoices.

How to Use TReDS?

Using TReDS is simple and consists of the following steps:

1. Registration: MSMEs, buyers, and financiers must enroll on a RBI-approved TReDS platform.

2. Submission of Invoice : MSMEs submit invoices for the goods and services that are provided

3. Approval: Buyers confirm that the invoices will be paid on the platform.

4. Bidding: Financing companies place bids for the invoices, providing competitive discount rates.

5. Disbursement: MSMEs get the full amount of invoice, while buyers pay back the financier at maturity.

What Trade Receivables Can Be Discounted on TReDS?

TReDS enables the discounting of:

Credit sales done by MSME to corporates or government entities.
Receivables backed by valid invoices approved by the buyer.
Transactions in accordance with TReDS norms.

What is TReDS in SBI Factors?

At SBI Factors, we understand the significance of empowering MSMEs with innovative financial solutions. The micro, small, and medium enterprises (MSMEs) also benefit TReDS extensively with SBI Factors assisting them with their cash flow and working capital management. Services in-line with governmental pushes for small business development and sustainability.

Benefits of TReDS for MSMEs

1. Immediate Access to Funds: MSMEs receive the payment of their invoices without having to wait for the payment cycle of the buyer.

2. Enhanced Cash Flow: Provides continuous working capital to fulfil operational requirements.

3. Competitive Financing: There are several financiers competing for the invoices, leading to competitive discount rates.

4. Transparency: A simple and transparent invoice discounting process.

As an SBI Factors partner, take charge of your business. We are focused on supporting MSMEs with seamless and effective trade receivables discounting services. Learn more at SBI Factors today and increase your business liquidity.

TReDS are a boon for MSMEs as they offer them liquidity to sustain. Under SBI Factors guidance and assistance, companies around the world can realize true potential and reach new heights for growth and success.

FAQs on TReDS

Q1: What is TReDS full form?

TReDS = Trade Receivables Discounting System

Q2: Who developed TReDS?

TReDS, as an initiative of the RBI, was designed to help MSMEs better manage their receivables.

Q3: Why is TReDS so important for MSMEs?

It enables MSMEs to quickly access funds by discounting their trade receivables.

Q4: How is TReDS different from other modes of financing?

TReDS is a new system based on platform technology that ensures greater price transparency and competitive rates through competitive bidding by financers, unlike traditional loans.

Q5: What are the RBI approved TReDS platforms?

Receivable Exchange of India (RXIL), M1Xchange and A TReDS Limited are RBI-approved TReDS platforms.

Understanding TReDS: Empowering MSMEs through Invoice Discounting