The Trade Receivables Electronic Discounting System (TReDS) is an RBI-regulated online platform that helps MSMEs (Micro, Small, and Medium Enterprises) get financing against their invoices. It provides a secure and efficient way to receive payments quickly, improving cash flow and liquidity for small businesses.
How does TReDS work?
TReDS enables MSMEs to get financing for invoices issued to corporate buyers, PSUs, and government departments through an auction system with multiple financiers.
- Creation of Factoring Unit (FU): The MSME seller or buyer uploads the invoice (called a Factoring Unit) onto the platform.
- Authentication: The buyer verifies and approves the FU, confirming the payment obligation.
- Competitive Bidding: Banks and NBFCs bid on the FU, offering a discounted amount.
- Payment to MSME: The MSME chooses the best bid. The financier pays the discounted amount (e.g., 90% of invoice value) within 24–48 hours. The MSME is not liable if the buyer defaults.
- Settlement: On the due date, the buyer pays the full invoice amount directly to the financier.
How many TReDS platforms are there currently?
Several RBI-authorised TReDS platforms are active in India:
- Receivables Exchange of India Ltd (RXIL): A joint venture between SIDBI and NSE.
- M1xchange (A.TReDS Limited / Mynd Solutions): Connects MSMEs with multiple financiers.
- Invoicemart (A.TReDS Limited): Promoted by Axis Bank and mjunction services.
Other platforms like C2FO and DTX (KredX) are also authorised to operate.
Who is required to register on the TReDS?
TReDS transactions involve three main participants, with registration rules to protect MSMEs:
| Participant | Description | Registration Requirement (RBI/GOI Mandate) |
|---|---|---|
| MSME Sellers | Suppliers of goods or services who want to discount their invoices | Voluntary but strongly recommended to improve cash flow. Only MSMEs can be sellers. |
| Corporate Buyers | Companies that owe payments to MSMEs | Mandatory for all companies under the Companies Act, 2013, with turnover above ₹250 crore, and all Central Public Sector Enterprises (CPSEs). Deadline for registration is March 31, 2025. |
| Financiers | Banks, NBFCs, and other RBI-approved financial institutions providing funding | Voluntary, but required for those wishing to bid on invoices. |
What are the documents required for TReDS?
Although requirements may differ slightly between platforms, MSMEs generally need the following for smooth digital onboarding:
- Business Registration Proof: Certificate of Incorporation, Partnership Deed, or Udyam Registration Certificate.
- KYC Documents: PAN Card of the business and authorised signatories.
- GST Registration Certificate: To verify sales and business activities.
- Bank Account Details: Along with a bank confirmation letter or a cancelled cheque.
- Board Resolution: Authorising specific personnel to carry out transactions on the TReDS platform.
Advantages of TReDS
TReDS helps solve the long-standing problem of delayed payments for MSMEs and offers several benefits:
- Improved Liquidity and Cash Flow: MSMEs can get funds quickly, often within 24 hours of bid acceptance, without waiting for long credit periods.
- Collateral-Free Financing: Loans are based on the buyer’s credit, not the MSME’s, making funding easier and off-balance sheet.
- Competitive Cost: Multiple financiers bid through the electronic auction, lowering discounting rates compared to traditional loans.
- No Recourse to MSME: MSMEs are protected if the buyer defaults, as the financier assumes the payment risk.
- Transparency and Compliance: The RBI-regulated digital platform ensures secure, standardised transactions, helping businesses follow the MSMED Act’s 45-day payment rule.
Conclusion
TReDS is an important digital and regulatory tool that strengthens the financial health and efficiency of MSMEs in India. By addressing delayed payments through a transparent, competitive platform, it helps small businesses focus on growth.
If your MSME plans to expand or needs additional working capital beyond invoice discounting, a business loan can provide dedicated financial support. Checking your pre-approved loan offer can help manage costs for expansion or improve cash flow effectively.
