Trade Receivables Discounting System (TReDS): Meaning, Working and Benefits

Context: Recently, the Reserve Bank of India proposed to drop the due diligence requirement for MSMEs to onboard TReDS platforms to promote ease of doing business for micro, small and medium enterprises.

Trade Receivables Discounting System (TReDS)

• Trade Receivables Discounting System is an electronic platform for facilitating the financing/discounting of trade receivables of Micro, Small, and Medium Enterprises (MSMEs) through multiple financiers.
• These receivables can be due from corporates and other buyers, including Government Departments and Public Sector Undertakings (PSUs).
• Purpose: To allow MSME sellers to discount invoices raised against major corporations, which helps them manage their working capital demands. The platform enables MSMEs to receive payments more quickly.
• Participants
  • Sellers, buyers, and financiers are the participants on a TReDS platform.
  • Only MSMEs can participate as sellers in TReDS.
  • Corporations, Government Departments, PSUs, and any other entity can participate as buyers in TReDS.
  • Banks, NBFCs – Factors, and other financial institutions, as permitted by the RBI, can participate as financiers in TReDS.
• RBI has not made it compulsory for any buyer, seller, or financier to participate in TReDS.
• The Government has made it compulsory for certain segments of companies to mandatorily register as buyers on the TReDS platform(s).

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