Trade Receivables Discounting System -TreDS for MSME

Trade receivables discounting system known as TReds is an Online Bill Discounting System approved by Reserve Bank of India.

TReDS is an online transparent system made to provide instant cash flow to the Suppliers MSME by the financers against the Invoice uploaded on the trading platform in lieu of the payment receivables from the corporate buyers in the future .

There are mainly three participants in the system :

1.  MSME Supplier’s

2. The Lenders

3. The Corporate Buyer’s

Reserve Bank of India has approved exchanges like M1XCHANGE : https://www.m1xchange.com/

which provide the common transparent platform where the process of Trade Receivables or Bill  discounting takes place .

Suppose a MSME Supplies to Corporate  Buyer a Product worth Rs. 10,00,000 but Buyer  can’t make the payment immediately but after 1 month.

Now the MSME uploads the Invoice on the exchange platform the buyer accepts the invoice and after bidding the lenders quoted a bid of 12 % per annum Interest  and supplier accepts it .

Now the lender whose bid has been accepted makes the payment of Rs. 9,90,000 to Supplier  MSME and Lender keeps Rs. 10,000 and receives Rs.10,00,000 from Buyer Corporate after 1 Month. Interest Rates depends on the rating of the Buyer’s.

There mainly two types of Trade receivables :

1.  Factoring

Suppose a MSME Supplies to Corporate  Buyer a Product worth Rs. 10,00,000 but Buyer  can’t make the payment immediately but after 1 month.

Now the MSME uploads the Invoice on the exchange platform the buyer accepts the invoice and after bidding the lenders quoted a bid of 12 % per annum Interest  and supplier accepts it .

 Payment :

Now the lender whose bid has been accepted makes the payment of Rs. 9,90,000 to Supplier  MSME next day and Lender keeps Rs. 10,000 and receives Rs.10,00,000 from Buyer Corporate after 1 Month.

Interest Rates depends on the rating of the Buyer’s.

2. Reverse Factoring

Suppose a MSME Supplies to Corporate  Buyer a Product worth Rs. 10,00,000 but Buyer  can’t make the payment immediately but after 1 month.

Now the Buyer Corporate uploads the Invoice on the exchange platform  and after bidding the lenders quoted a bid of 12 % per annum Interest  and Buyer Corporate accepts it .

Payment :

Now the lender whose bid has been accepted makes the payment of Rs. 9,90,000 to Supplier  MSME next day  and Lender keeps Rs. 10,000 and receives Rs.10,00,000 from Buyer Corporate after 1 Month.

Interest Rates depends on the rating of the Buyer’s.

Trade receivables discounting system VS  Business  Loan 

Bill Discounting	Business loan
No Collateral Required	Collateral required
Fast Process	Lengthy Process
Short Term Loan	Long Term Loan
Digital Process	Physical Documentation
Minimum Documentation	Lots Documents Required
Simple eligibility criteria	Stringent eligibility requirements
No impact on the Business Balance Sheet	Impact on Business Balance Sheet

So M1XCHANGE provides a very good platform for easy  Trade Receivables Discounting system MSME should make the best use of this platform for liquidity.

Also read : https://financeloaninsurance.com/loanagainstinsurancepolicy