The Ultimate Guide to TReDS: A Game Changer

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The Ultimate Guide to TReDS: A Game Changer

A platform called TReDS (Trade Receivable Discounting System) was developed to assist Indian MSMEs and other companies in financing and lowering their trade receivables.

Trade receivables meaning is the amounts owed to a business by its customers for goods or services that have been delivered but not yet paid for.

This ultimate guide will tell you how TReDS is a game changer.

What is TReDS? 

An electronic platform called TReDS makes it easier for Micro, Small, and Medium-Sized Enterprises (MSMEs) to finance or discount their trade receivables through a number of different financiers. Corporates and other purchasers, such as government agencies and public sector enterprises (PSUs), may be the source of these receivables.

Knowing the advantages of TReDS and how it works is crucial. Let's first examine how it functions.

How Does TReDS Work?

·       Invoice uploading: The TReDS platform receives invoices from sellers, who are often MSMEs.

·       Verification of invoices: The platform confirms that the invoices are legitimate and eligible for discounting.

·       Invoice discounting: After their verification of invoices, these vendors receive instant cash when a factoring business buys their invoices at a discount rate.

·       Payment collection: When the invoice payment is due, the factoring company collects the funds from the clients on behalf of the business.

Now let’s understand about the benefits of TReDS.

Benefits of TReDS:

·       Automation and transparency

The risk of any misconduct is eliminated because the entire procedure is carried out electronically, negating the necessity for human participation.

·       A process that is hassle-free and paperless 

By removing a large portion of the paperwork, TReDS simplifies the procedure for MSME suppliers.

·       Faster transactions and reduced turnaround times for finance

TReDS provides quicker bill approval and payment against trade receivables than a traditional factoring arrangement.

·       The competitive price-determination process 

MSME suppliers are certain of receiving the best pricing for their invoices since auctions control the entire process.

·       Eliminating payment delays

MSME suppliers benefit from quick payment as soon as their invoices are approved, eliminating payment delays.

·       An effective working capital

As TReDS eliminates the need for MSME suppliers to wait until the due date on their invoices to be paid, they are able to boost their liquidity.

·       Extensive funding options 

Beyond conventional bank loans and advance payments, TReDS offers financing choices like supply chain financing accessible to MSME merchants.

These are some benefits that prove that this platform is proving to be a game changer for MSMEs.

Factors to consider before selecting a TReDS platform

After learning how the TReDS portal operates and its advantages, it is critical to understand the factors to take into account when making your decision before choosing this platform.

Here are some factors that need to be considered.

·       Accreditation and registration

Please confirm whether the TReDS platform is approved by a TReDS Exchange and registered with the Reserve Bank of India (RBI). This is because they provide a mark of approval, ensuring that the platforms follow stringent rules, operate securely, and maintain high service standards.

·       Charges and fees

To prevent unforeseen expenses, carefully weigh all fees and charges before choosing this platform. Certain systems could include unstated costs, such as maintenance, withdrawal, or inactivity fees. 

·       Turnaround time (TAT)

When choosing this platform, turnaround time (TAT) must be taken into account. This is due to the fact that a quicker TAT indicates that your transactions are handled promptly. This will enable you to seize market opportunities right away. This is particularly crucial in erratic markets where prices are subject to sudden fluctuations.

·       Safety 

Safety is one of the most important considerations when selecting a TReDS platform. This is due to the fact that there are several cyberthreats that have the potential to inflict large financial damages. Therefore, a secure platform reduces these risks by utilising the best security measures in place.

·       Customer service

Having reliable customer service support minimises possible losses by ensuring that any issues you run into are promptly fixed. Therefore, these are some factors that need to be kept in mind before choosing a reliable TReDS platform.

M1xchange

It is also important that you should know that three businesses were granted "in principle" permission by the Reserve Bank of India (RBI) to establish the Trade Receivable Discounting System (TReDS) platform on November 24, 2015. In compliance with the Payment and Settlement System (PSS) Act of 2007, Mynd Solutions Pvt Ltd, one of the three businesses, launched M1xchange on April 7, 2017.

Through the use of several lenders and an open bid process, this platform aims to provide cash flow finance linked to MSMEs' supply chains at competitive rates.

Conclusion

The TReDS platform has seen significant growth in India, with increasing participation from both corporates and MSMEs, leading to higher transaction volumes. This platform is a crucial tool for improving the financial health of MSMEs and thus has proven to be a game changer for them.

The purpose of M1xchange is to facilitate trade receivable financing and discounting for micro, small, and medium corporations (MSMEs).

 

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