Document

All about Trade Receivables Discounting System (TReDS) Online Platform

By Annapoorna

|

Updated on: Oct 13th, 2022

|

7 min read

social iconssocial iconssocial iconssocial icons

Trade Receivables Discounting System (TReDS) is an invoice discounting platform set up by the Reserve Bank of India (RBI) for regulating the trade receivables between Micro, Small & Medium Enterprises (MSMEs), large organisations and financiers. TReDS is beneficial not only to those above but to the entire Indian economy.

What is TReDS?

MSMEs still struggle with unpaid invoices from suppliers. TReDS is an online platform which allows MSME suppliers to discount their invoices, enabling them to receive payments before their due date. The RBI launched TReDS launched in 2018.

What is the main purpose of TReDS?

The key objective of the TReDS is to facilitate the financing of invoices of MSME vendors drawn on big organisations and other corporates, including Public Sector Undertakings (PSUs) and Government Departments, by discounting by the financiers. The participants in this system work together to facilitate, accept, discount, and settle the invoices. TReDS’ primary purpose is to help MSMEs manage their working capital requirements.

Who can be a TReDS participant?

Sellers, buyers and financiers are the key participants in the TReDS platform. The eligibility for each participant is provided in the table below:

SellersBuyersFinancers
MSMEs onlyAny entityNBFCs, factors and other financial institutions as permitted by RBI

How does TReDS work?

TReDS workflow can be divided into the following points:

  • Factoring Unit (FU) creation – A FU is a standard nomenclature used in TReDS platforms for an invoice or a bill of exchange. Each FU denotes a confirmed obligation of corporate or other buyers, including PSUs and Government Departments. A FU contains the details of an invoice or a bill of exchange on the TReDS platform created by the MSME seller or the buyer in case of reverse factoring.
  • FU acceptance – The buyer or the seller, as the case may be, accepts the FU.
  • Bidding by financiers,
  • Selection of the best bid by a seller or a buyer, as per the case;
  • Payment by the financier to the MSME seller at a predetermined rate of financing or discounting;
  • Payment by the buyer to the financier on the due date.

Benefits of TReDS for MSME suppliers

  • Minimal paperwork required
  • MSME do not have the onus in case of default in payment by the buyer
  • MSME sellers have the right to determine the best bid
  • MSME sellers can get the payment on T+1 on a successful auction
  • MSME sellers do not have to follow up with the buyer

Limitations of TReDS

There are two major limitations or concerns with TReDs which are listed below: 

  • Privacy – Many organisations believe that their competitors would be able to find out where their organisation sources its materials. 
  • Recovery – Businesses often prefer giving lengthier credit terms to their suppliers and may not be able to recover the receivables within 45 days.

Steps to register for buyers/ financiers

Buyers/financers looking to avail the benefits of TReDS need to first complete the RXIL registration. Here are the steps that a buyer/financer needs to follow:

Step 1. The buyer and financer need to obtain the onboarding kit over email from the RXIL executive.

Step 2. The buyer or financer then needs to fill up the forms with the sign and stamp of the authorised officials.

Step 3. The buyer or financer needs to collect the self-attested KYC documents (Proof of Identity and Address) of all the individuals as mentioned in the onboarding form.

Step 4. The buyer or financer then needs to submit scanned copies of the aforesaid documents over email to the RXIL executive.

Step 5. The buyer or financer needs to provide NACH auto debit mandate of a designated bank account.

Step 6. The buyer or financer then needs to lodge the aforesaid NACH auto debit mandate on NPCI by the RXIL executive.

Step 7. The RXIL executive will then scrutinise all of the above steps.

Step 8. After scrutinising, the RXIL executive will feed the data into the system

Step 9. The buyer or financer then needs to pay the one-time registration fee.

Step 10. Once all the above steps are completed, the buyer or financer needs to send all the original documents to RXIL after receiving RXIL login ID and password.

Step 11. The RXIL nominated executive will visit the buyer or financer for Onsite verification and Original Seen & Verified (OSV).

Steps to register for sellers

Here is a quick walkthrough on how to register on one of the three TReDS platforms, RXIL. Sellers looking to avail the benefits of TReDS need to first complete the RXIL registration. Below are steps that a seller needs to follow:

Step 1. The seller first needs to visit the RXIL website – https://www.rxil.in

Once the seller is on the RXIL portal, the seller needs to click on the Register button as shown in the image below.

TReDS

Step 2. The seller then needs to fill up the application form as shown in the image below.

treds

Step 3. Once the seller has filled out the application, the seller needs to provide the mobile number used while doing the RXIL registration as shown below.

treds

Step 4. Once the seller provides the mobile number, an OTP will be sent to the registered mobile number, and the seller needs to enter the OTP to proceed further.

Step 5. Now, the seller needs to upload self-attested documents pertaining to oneself or the entity. Listed below are the documents the seller needs to upload for KYC purposes.

treds

Step 6. Apart from the self-attested documents, the seller needs to upload the documents listed in the image below attested by the authorised officials.

treds

Step 7. The seller now needs to review the uploaded documents along with the registration form by the RXIL executive.

Step 8. Now, the seller needs to pay the one-time registration fee.

treds

Step 9. Once all the above steps are completed, the seller needs to send all the original documents to RXIL, after receiving RXIL login ID and password.

Step 10. The RXIL nominated executive will visit the seller for Onsite verification and Original Seen & Verified (OSV).

Clear Invoice discounting provides multiple ways to easily fund early payments at a mutually-agreed discount, leading to a win-win for buyer and seller parties.

Frequently asked questions on TReDS

What happens if the buyer defaults?

The transactions processed under TReDS are without recourse to the MSME sellers; hence, the seller doesn’t have to pay the financier if the buyer defaults in repayment.

Requirement for authorisation for TReDS

An authorisation is required from the Reserve Bank of India under the Payment and Settlement Systems (PSS) Act, 2007, for setting up and operating a TReDS platform.

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

Index

Clear offers taxation & financial solutions to individuals, businesses, organizations & chartered accountants in India. Clear serves 1.5+ Million happy customers, 20000+ CAs & tax experts & 10000+ businesses across India.

Efiling Income Tax Returns(ITR) is made easy with Clear platform. Just upload your form 16, claim your deductions and get your acknowledgment number online. You can efile income tax return on your income from salary, house property, capital gains, business & profession and income from other sources. Further you can also file TDS returns, generate Form-16, use our Tax Calculator software, claim HRA, check refund status and generate rent receipts for Income Tax Filing.

CAs, experts and businesses can get GST ready with Clear GST software & certification course. Our GST Software helps CAs, tax experts & business to manage returns & invoices in an easy manner. Our Goods & Services Tax course includes tutorial videos, guides and expert assistance to help you in mastering Goods and Services Tax. Clear can also help you in getting your business registered for Goods & Services Tax Law.

Save taxes with Clear by investing in tax saving mutual funds (ELSS) online. Our experts suggest the best funds and you can get high returns by investing directly or through SIP. Download Black by ClearTax App to file returns from your mobile phone.

Cleartax is a product by Defmacro Software Pvt. Ltd.

Company PolicyTerms of use

ISO

ISO 27001

Data Center

SSL

SSL Certified Site

128-bit encryption