Trade Receivables electronic Discounting System (TReDS)

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 Trade Receivables electronic Discounting System (TReDS)

TReDS (Trade Receivable Discounting System) is a digital platform designed to help Indian MSMEs and businesses improve their cash flow by facilitating the discounting of their trade receivables. This system provides a more efficient and transparent way for businesses to access working capital, ultimately boosting their financial health and growth potential. Here, trade receivables mean the sum that clients owe a company for offered products or services that have not yet been paid for.
In this blog, the discussion of the TReDS platform will continue in greater depth.

How Does TReDS Operate?
  • Uploading Invoices: Sellers, who are frequently MSMEs, submit invoices to the TReDS platform.
  • Invoice Verification: The platform verifies the validity and eligibility of the invoices.
  • Invoice Discounting: When a factoring company purchases these suppliers' invoices at a reduced price, the sellers get immediate cash.
  • Money Collection: The factoring company collects the buyers' money when the invoice is due.
Treds Advantages Include:

·       Automation and Transparency
 Since the entire process is done electronically, there is no chance of any mishandling because human involvement is not required.

·       A Paperless and Easy Process
 TReDS streamlines the process for MSME suppliers by eliminating a significant amount of paperwork.

·       Quicker Transactions and Shorter Finance Turnaround Times
 Compared to a conventional factoring agreement, TReDS offers faster bill approval and payment against trade receivables.

·       The Process of Competitive Price Determination
 Since auctions manage the entire process, MSME suppliers can be sure they will get the best price for their invoices.

·       Payment Shortfalls
 As soon as their invoices are accepted, MSME suppliers receive quick payment, which removes the requirement for payment chasing.

·       An Effective Working Capital
 MSME suppliers can increase their liquidity as TReDS removes the requirement for them to wait until the invoice's due date to get paid.

·       A Wide Range of Funding Choices
 TReDS provides MSMEs with financing options such as supply chain finance in addition to traditional bank loans and advance payments.

These are the advantages that demonstrate how this platform can be great for MSMEs. Now let’s understand what to do for selecting a TReDS that can be right for the businesses. MSMEs will choose the finest platform for themselves if they take into account the following factors:

·       Legitimate Registration and Accreditation
 It is crucial to verify if the TReDS platform is registered with the Reserve Bank of India (RBI) and approved by a TReDS Exchange. This type of registration and accreditation shows its legitimacy. Also, they guarantee that the platforms adhere to strict guidelines, run safely, and uphold excellent service standards.

·       Fees and Charges
 Before selecting this platform, carefully consider all fees and charges to avoid unanticipated costs. Unstated expenses like maintenance, withdrawal, or inactivity fees may be a part of some systems.

·       TAT
 TAT (Turnaround Time) must be considered while selecting this platform. This is because a faster TAT means that transactions of businesses are processed faster. This will allow them to immediately take advantage of market possibilities. This is especially important in volatile markets where prices can change suddenly.

·       Security
 One of the most crucial factors to take into account when choosing a TReDS platform is safety. The reason for this is that there are several cyberthreats that might cause significant financial harm. Therefore, by employing the finest security mechanisms available, a secure platform lowers these risks.

·       Service for Clients
 Reliable client service reduces potential losses by guaranteeing that any problem clients face is resolved quickly. Therefore, business owners should take this issue into account before selecting this platform.
When selecting a trustworthy TReDS platform, prioritise these key considerations:

Currently, there are three companies that are approved by the RBI to form the TReDS platform. One of the companies that have been approved for it is Mynd Solutions Pvt. Ltd. Here, this TReDS portal will be discussed.

What is M1xchange?

On November 24, 2015, the Reserve Bank of India (RBI) gave three companies to set up the Trade Receivable Discounting System (TReDS) platform. On April 7, 2017, Mynd Solutions Pvt. Ltd., one of the three companies, introduced M1xchange in accordance with the Payment and Settlement System (PSS) Act of 2007.

This platform strives to offer cost-effective cash flow financing to MSMEs by leveraging a diverse lender base and a transparent bidding mechanism.
Prominent companies including Amazon, Mayfield, BEENXT, IndiaMART, and SIDBI Venture Capital Limited are among its investors.

Conclusion

This blog has provided a comprehensive overview of Trade Receivables Discounting System (TReDS) platforms, including their definition, key benefits for MSMEs, and the underlying mechanisms. Additionally, it has offered valuable guidance on selecting the most suitable TReDS platform for specific business needs.

The Reserve Bank of India (RBI) authorised three companies to establish TReDS platforms in 2015. Mynd Solutions Pvt. Ltd. launched M1xchange in 2017, a platform facilitating MSME financing through invoice discounting. It offers competitive financing rates through a transparent bidding process involving multiple lenders.
 
 
 

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