Financing for small and medium enterprises has been revolutionised over the last few years. One of the most prominent and well-known methods is the receivable finance model. Nevertheless, this methodology has several challenges. The extensive verifications and demanding documentation makes the transaction cumbersome and counterproductive. The entire process of onboarding is very time-consuming, and therefore, provokes resistance from genuine buyers and investors.
Trade Receivables Discounting System (TReDS) is an electronic platform that allows businesspersons to trade account receivables such as invoices. This platform is transparent and enables quick financing for the SMEs. It is also a cheaper alternative to banks and factoring companies.
This process involves three stakeholders; the corporate buyer, the SME supplier, and the investor/financier. The open system ensures transparency to all stakeholders and is entirely automated.
It is an RBI regulated trading platform meant to buy and sell receivables on a bidding model under the Payments and Settlement System (PSS) Act 2007.
The SME supplier uploads an invoice onto the platform, which is subsequently approved by the buyer. The invoice is then open for bidding to investors present on the platform. Once the business accepts a bid that best suits them, the reduced amount is sent to the company’s bank account within a few days. This gives SMEs an opportunity for quick access to funding at a reasonably low rate of interest.
TReDS helps a businessperson avail funding against pending invoices. Some other benefits are:
TReDS is enabling easy access to finance to SMEs in a short time frame in comparison to banks and other financial institutions. This is well-known that small and medium businesses are imperative to the economy in terms of GDP contributions and employment. Despite this, cash flow challenges still affect these businesses restricting them to grow to their full potential.
Even if a few of these companies are made financially stable, it would help boost the economy and increase employment. Invoice factoring plays a huge role in helping these types of companies rejuvenate their cash flow and thereby helping them reach their full potential.
The government has undertaken a lot of effort to support small and medium scale businesses. Over the last few years, there have been several initiatives to provide speedy funding to these types of businesses.
It is arguably one of the best times in history for small and medium enterprises to thrive in the market. And platforms like TReDS have simplified and quickened the process for these types of businesses to inject capital as required.
It is an acronym for Trade Receivable Discounting System and refers to is an institutional, digital marketplace for trading receivables such as pending invoices. The transparency of this system and the quick processing of funds make it an apt financing solution for SMEs.
Generally, the following steps are followed while financing through TReDS.
Yes, this platform deals with both factoring and reverse factoring.
Yes. Entities of TReDS adopt a KYC process. This process adheres to KYC direction issued by the RBI in 2016.
No, Handling default payments is outside the scope of the TReDS platform.
This is the file that contains the information regarding the amount that needs to be credited and debited to the accounts of all the participants involved in the transaction. It also contains information on when the amount is due. This file is generated by TReDS entities the same file is sent to payment systems for the actual transfer of funds.