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Benefits of TReDS for MSME suppliers

By Annapoorna

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Updated on: Jan 19th, 2023

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3 min read

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The Reserve Bank of India has initiated a digital platform called Trade Receivables Discounting System (TReDS) for facilitating Micro, Small & Medium Enterprise suppliers by financing their trade receivables. TReDS benefits suppliers by enabling competitive rates for invoices made to large corporates.

Benefits of TReDS to MSMEs

  • Automated, transparent platform – Since the entire process is online, it is automated and transparent, and no human intervention takes place, making the process free from any malpractice.
  • Paperless and hassle-free process – Since the entire process is over the web, there is minimal paperwork for the MSME suppliers, and this reduction in paperwork makes it hassle-free for them.
  • Faster transaction and low turnaround time for financing – When compared to the orthodox factoring set-up, TReDS offers faster approval for their invoices and immediate payment against their trade receivables.
  • Competitive price discovery – The entire process is driven by auction, which ensures the MSME suppliers receive the best rates for their invoices.
  • No follow-ups for payment – The MSME vendors don’t have to follow up for payment as they get paid immediately once the invoices are approved.
  • Efficient working capital – As MSME vendors don’t have to wait till the due date of their invoices to get paid, TReDS allows them to improve their liquidity.
  • Widening financing options – TReDS has widened the financing options for MSME vendors, limited to Bank loans, advance payments, etc.

Limitations of using TReDS

TReDS is in its infancy as a trade-receivables discounting platform for MSMEs and has teething problems. The main concern is the identity of MSME suppliers for large corporations, as large firms fear that their competitors will discover their suppliers. 

Another problem is the pace at which the invoices are approved. Companies often take up to 45-60 days to approve invoices.

The way forward for TReDS

The troubles for MSMEs and other small vendors dealing with several government agencies are expected to ease soon as the government is factoring in major changes to the TReDS platform and its functioning.

The government is looking to cut through bureaucracy and ramp up the bill payments by getting its departments to adopt TReDS mandatorily. For the government, faster supplier payments would enhance competitiveness and lower costs.

One of the key recommendations includes integrating the e-invoicing portal of GSTN with TReDS for smoother underwriting, enabling insurers to provide credit insurance and bringing MSME suppliers under a stricter ambit of credit rating regularities.

Conclusion

To conclude, whether one is a corporate buyer, financier, or MSME supplier, they will reap multiple benefits from this system. It is a huge step that would revolutionise business transactions in India.

About the Author

I preach the words, “Learning never exhausts the mind.” An aspiring CA and a passionate content writer having 4+ years of hands-on experience in deciphering jargon in Indian GST, Income Tax, off late also into the much larger Indian finance ecosystem, I love curating content in various forms to the interest of tax professionals, and enterprises, both big and small. While not writing, you can catch me singing Shāstriya Sangeetha and tuning my violin ;). Read more

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