How to use Treds?

What exactly is TReDS?

MSMEs continue to confront the issue of unpaid invoices from vendors, and COVID has just been added to the list of issues. The Trade Receivables Discounting System (TReDS) is an online platform that allows MSME suppliers’ bills and invoices to be discounted.

The platform enables MSMEs to receive payments more quickly. For SMEs, the platform also provides a reduced annual interest payment.

The TReDS’ primary objective is to facilitate the discounting of bills made by MSME sellers against major corporates, therefore assisting them in managing working capital demands.

TReDS’s Best Features

  • A common platform that connects MSME suppliers, corporate buyers, and banks
  • Carry out online transactions
  • Discount rates that are competitive
  • The government ensures that data flows smoothly and that standards are followed.

How the TReDS platform assists MSMEs in managing working capital:

TReDS is the TReDS platform. TReDs experts advised MSMEs to explore receiving funding using the TReDS platform on August 29, 2020. The platform enables MSMEs to get money ahead, which assists them in resolving any working capital issues and, as a result, better managing their business. Because it is an off-balance-sheet transaction, the centre believes that discounting receivables might be a useful source of funding for cash-strapped MSMEs.

A financier or bank bids on an MSME bill (trade receivable) before the due date or before the buyer makes the payment.

Creating an account on the TReDS platform –

Approximately 10,000 MSMEs are currently registered on the site. An increase in the number of TReDS registrations from MSMEs would help to boost MSMEs’ liquidity collectively.

How it works:

The invoice must be uploaded to the site by the vendor. It is subsequently forwarded to the buyer for approval. When the buyer agrees, the invoice is converted into a factoring unit. The factoring unit is then auctioned off. Following that, the financiers input their discounting (financing) rate. The final bid is accepted by the seller or buyer, whoever is carrying the interest (finance) cost. TReDs then settle the transaction by debiting the financier and crediting the seller. The sum is credited to the seller’s authorised bank account the next working day via an electronic payment mechanism. The second stage of the settlement occurs when the financier makes the repayment and the sum is returned to the financier.

To summarise, the following stages occur during TReDS financing / discounting:

  • Creation of a Factoring Unit (FU) – TReDS standard nomenclature for invoice(s) or bill(s) of exchange – containing details of invoices/bills of exchange (evidencing sale of goods/services by MSME sellers to buyers) on the TReDS platform by the MSME seller (in case of factoring) or the buyer (in case of reverse factoring);
  • Acceptance of the FU by the counterparty – buyer or seller, depending on the circumstances;
  • Financial bidders;
  • Selection of the best bid by the seller or buyer, as applicable;
  • Payment is given to the MSME seller by the financier (of the accepted bid) at the agreed-upon financing / discounted rate;
  • On-time payment by the buyer to the lender.
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