The Trade Receivables Discounting System (TReDS) involves three main participants: the SME seller, the corporate buyer, and the financier. Here is a detailed explanation of each participant:
- SME Seller: SME sellers are typically small and medium-sized businesses that supply goods or services to large corporates. These SMEs face cash flow problems due to delayed payments from their buyers. TReDS provides SMEs with an opportunity to raise finance against their trade receivables. To participate in TReDS, SMEs must register on the platform and upload their invoices for validation. Once the invoices are validated, the SMEs can receive finance against the invoices at a discount.
- Corporate Buyer: Corporate buyers are large companies that purchase goods or services from SMEs. These buyers often delay payments to their suppliers, causing cash flow problems for SMEs. TReDS provides a platform for corporate buyers to validate and approve invoices raised by their suppliers. Once the invoices are validated, the SMEs can receive finance against the invoices at a discount.
- Financier: The financiers on TReDS are typically banks and Non-Banking Financial Companies (NBFCs) that offer finance against the trade receivables uploaded by SMEs. Financiers can view the validated invoices on the platform and make offers to finance them at a discount. Once the SME accepts the offer, the financier disburses the funds to the SME’s bank account. When the invoice becomes due, the financier collects the payment directly from the corporate buyer.
TReDS also involves other participants, such as the Trade Receivables Discounting System Member (TReDS member), the Trade Receivables Discounting System Operator (TReDS operator), and the Registrar of TReDS. The TReDS member refers to the entity that has been granted a license by the Reserve Bank of India to operate a TReDS platform. The TReDS operator refers to the entity that operates the TReDS platform. The Registrar of TReDS is responsible for regulating and overseeing the functioning of the TReDS platform.
In summary, TReDS involves three main participants – SME seller, corporate buyer, and financier – who collaborate on a platform to facilitate invoice discounting. The platform provides SMEs with access to finance at a lower cost, faster processing time, and with reduced risk. The corporate buyers benefit by ensuring timely payments to their suppliers, and the financiers benefit by earning a return on their investments in trade receivables.