July 30, 2021

What is TReDS?

TReDS stands for Trade Receivable e- Discounting System.

TReDS is an online platform on which the trade receivables are auctioned , this process is commonly known as bill or invoice discounting.

There are three parties – MSME Supplier, Corporate Buyer and Financier.

Here, the MSME Supplier can sell an invoice to a financer which is due to be paid at a future date. Thus, this helps MSMEs to obtain funds on credit on the basis of invoice and start working without any cash flow problems.

How does TReDS works?

Benefits of TReDS

For Suppliers

• best discount rates due to participation of multiple financiers in the auction.
• quick finance option-MSMEs can now operate without facing any irregular flow of their operational funds
• without recourse financing -once the supplier receives the funds from the financier, the financier has no recourse to the supplier to recover the funds
• collateral free financing – TReDS does not require the seller to provide any collateral in the form of hypothecation or mortgage of assets)

For Buyers

• Helps in efficient management of cash flow –  a buyer can enable early payment to its supplier on TReDS by Factoring or Reverse factoring of invoice. The supplier gets the payment before the due date and the buyer further extends its days payable as per its agreement with the bank. This helps the corporates optimize their working capital availability and regularize their cash flow.
• Bring down the cost of goods and services purchased- the buyer gets the power to negotiate better terms with the supplier while enjoying a more stable supplier base by facilitating their access to competitive financing.
• Lower vendor administration costs– This entire transformation cuts processing costs, eliminate discrepancies and optimize the cash flow for smooth operations for large corporates.

For Financiers

• Fulfil PSL targets more efficiently in less time–  Financial institutions have the opportunity to build a quality PSL asset portfolio since lending to the MSMEs through TReDS qualifies under PSL.  Financiers also get access to a readymade client base to connect with more bankable leads.
• Reduced operational cost–  the banks need not indulge in heavy paperwork and approvals. TReDS has defined workflows for all three stakeholders that save time and cost making the system efficient.
• Enables better decision making for enhanced profitability-  TReDS process ensure effective data collection and analysis that makes it possible for financiers, to take decisions on key business aspects in a more productive manner.