The Role of the TReDS Portal in Supporting India’s MSME Sector

 The Role of the TReDS Portal in Supporting India’s MSME Sector

The Trade Receivables Discounting System (TReDS) is a platform designed to streamline the financing and discounting of trade receivables for Micro, Small, and Medium Enterprises (MSMEs) through a network of multiple financiers. By enabling MSMEs to quickly receive payments on invoices issued to diverse buyers such as corporations, government entities, and public sector undertakings (PSUs), the TReDS platform enhances their cash flow management.

In this blog post, the role of the TReDS portal in supporting India’s MSME sector.

But first it is important to understand the working capital woes of Indian MSMEs.

The risk of late payments frequently paves the way for the expansion of many Indian MSMEs. Consider an MSME that has painstakingly completed an order, paying for labour and raw materials, only to have to wait a long time to receive the money they are due. For many small businesses around the country, this is their reality. The below points will give insight into it:

·       The cycle of delayed payments: Delays in payments are a widespread problem. Despite their financial resources, large purchasers frequently take a long time to pay their MSME suppliers. The cash flow of the MSME may be severely hampered by this delay, which may last for weeks or months.

·       Consequences of inadequate working capital: One of the main obstacles to MSMEs' growth is a lack of working capital brought on by these payment delays. They find it difficult to make investments in vital areas like increasing production capacity, modernising technology, or even carrying out necessary marketing campaigns when they lack easily accessible funding. It becomes increasingly difficult to pay for immediate operating expenses like rent and salaries. Additionally, jeopardised is their capacity to bargain for advantageous terms with their own suppliers. In the end, a lack of sufficient working capital can inhibit innovation and prevent these businesses from growing to their full potential.

·       The need for efficient financing solutions: Given these enormous financial strains, it is evident that Indian MSMEs urgently require timely and effective financing options. Several MSMEs may find it difficult to obtain bank loans through traditional channels because they lack collateral or have a short credit history. Here, the idea of receivable financing—which involves obtaining money based on what is owed to them via their invoices—becomes a vital lifeline. It provides a means of filling the void left by late payments and bringing much-needed liquidity into their business operations.

Now it's time to talk about its role in supporting MSMEs by understanding the benefits that these companies get. Below are those benefits:

·       Better cash flow and liquidity: The primary benefit is the quicker access to capital. MSMEs can almost instantly unlock the value of their receivables rather than waiting for lengthy payment cycles, which greatly improves their cash flow and liquidity.

• Less dependency on traditional loans: By providing an alternate financing option that is closely related to their sales transactions, TReDS lessens their dependency on potentially onerous traditional bank loans.
• Better negotiation power: Improved cash flow frequently puts MSMEs in a better position to bargain for better terms from their own suppliers and, eventually, even from their buyers.
• Simplified process: Compared to traditional methods, the TReDS portal's digital nature simplifies the financing process by cutting down on paperwork and increasing accessibility.
• Competitive discounting rates: When several financiers bid on invoices, the discounting rates become more competitive, which lowers the cost of financing for MSMEs.

After discussing these benefits, MSMEs should learn about TReDS registration process. This entails the buyer confirming and approving a legitimate invoice that the MSME supplier submits to the TReDS platform. A number of financiers begin placing lower bids on the invoice after it has been approved. The MSME has the option to accept or reject these bids; if they accept, the payment is completed and the lower sum is credited to the MSME supplier's account.

After learning about all this, businesses need to learn about M1xchange.

Approved by the Reserve Bank of India (RBI), M1xchange TReDS operates as a pan-India digital platform designed to facilitate the discounting of invoices and bills of exchange for MSMEs. Mynd Solutions Pvt Ltd received 'in-principle' authorisation from the RBI on November 24th, 2015, and launched M1xchange on April 7th, 2017, under the Payment and Settlement System (PSS) Act 2007. This invoice discounting platform serves the financial needs of MSMEs nationwide by enabling them to secure financing through the conversion of their trade receivables into liquid funds on a without-recourse basis. M1xchange employs a distinctive bidding process involving nationalised, private, and foreign banks to ensure competitive financing rates.

Conclusion

A key component of the continuous initiatives to strengthen India's MSME sector is the TReDS portal. TReDS full form is Trade Receivables Discounting System. It has the potential to significantly increase the growth and sustainability of these crucial businesses by directly addressing the ongoing problem of late payments and offering a simplified path for working capital financing. Improved liquidity, less dependence on conventional debt, and increased bargaining power are all significant advantages for MSMEs. Following a discussion of these advantages, MSMEs ought to get familiar with TReDS registration process.

M1xchange TReDS is a digital marketplace, approved by the RBI, enabling pan-India discounting of invoices and bills of exchange for MSMEs through banks and NBFCs. Established by Mynd Solutions Pvt Ltd, one of three companies granted RBI 'in-principle' approval on November 24th, 2015, M1xchange launched on April 7th, 2017, under the PSS Act 2007. It addresses MSME financing needs by allowing them to convert trade receivables into liquid funds without recourse, utilising a competitive bidding model involving various banks.