The Trade Receivables Discounting System (TReDS) is an electronic platform that enables small and medium-sized enterprises (SMEs) to finance their trade receivables. TReDS is operated by three entities in India – Receivables Exchange of India (RXIL), A.TReDS and M1Xchange.
TReDS allows SMEs to sell their trade receivables to financiers, such as banks and NBFCs (Non-Banking Financial Companies), at a discount. The platform facilitates the discounting of invoices and bills of exchange raised by SMEs against large corporate buyers. By selling their trade receivables, SMEs can obtain working capital finance at a lower cost than traditional sources of finance.
TReDS involves three parties – the seller (SME), buyer (corporate), and financier (bank/NBFC). The process begins with the SME uploading the invoice onto the TReDS platform, which is then validated by the buyer. Once the buyer validates the invoice, the financier can offer a discount rate to the SME. If the SME accepts the offer, the invoice is then discounted, and the financier releases the funds to the SME’s bank account. Once the invoice is due, the buyer pays the financier directly.
TReDS provides several benefits to SMEs, including:
- Access to Finance: TReDS provides SMEs with access to working capital finance at a lower cost than traditional sources of finance. This enables them to improve their cash flow, meet their working capital requirements, and invest in their business growth.
- Speed: TReDS facilitates quick processing and disbursement of funds, which helps SMEs to meet their financial obligations on time and avoid delays in payment.
- Transparency: TReDS provides transparency in the invoice discounting process. SMEs can track the status of their invoices and receive notifications at every stage of the process.
- Reduced Risk: TReDS provides SMEs with reduced risk of default, as the platform ensures that only validated invoices are accepted for discounting.
- Efficiency: TReDS simplifies the invoice discounting process, reducing administrative and processing costs for SMEs.
- Cash Flow Management: TReDS enables SMEs to manage their cash flow efficiently by providing access to finance against their trade receivables.
Overall, TReDS provides a platform for SMEs to obtain finance against their trade receivables at a lower cost, faster processing time, and with reduced risk. It has the potential to unlock significant financing for SMEs and can play a critical role in their growth and development.