TReDS (Trade Receivables Discounting System)

1. Introduction

One of the most persistent challenges faced by Micro, Small and Medium Enterprises (MSMEs) in India is delayed payment from buyers. Even after supplying goods or services, MSMEs often wait for long credit periods, which severely impacts their working capital and day-to-day operations. To address this systemic issue, the Government of India introduced TReDS (Trade Receivables Discounting System) which is a RBI regulated digital platform that enables MSMEs to receive early payment against their invoices by discounting them through banks and financial institutions. TReDS is referred to as a ‘discounting system’ because it enables MSMEs to receive early payment before the due date by selling their invoices to financiers at a discounted value. The TReDS platform is designed to support MSMEs engaged in manufacturing activities as well as those in the service sector.

2. What is TReDS?

TReDS is an electronic platform for facilitating the financing / discounting of trade receivables of Micro, Small and Medium Enterprises (MSMEs) through multiple financiers. These receivables can be due from corporates and other buyers, including Government Departments and Public Sector Undertakings (PSUs). It allows MSME sellers to upload invoices raised on large buyers and get them discounted by multiple financiers through a transparent bidding process. The platform is regulated by the Reserve Bank of India. The objective is to improve liquidity for MSMEs while ensuring timely payments and financial discipline across the supply chain.

 

3. Who are the participants in TReDS?

The Trade Receivables Discounting System (TReDS) operates through the active participation of three key stakeholders-Sellers, Buyers, and Financiers. The TReDS platform will support not only invoices raised by MSMEs in the manufacturing sector but also for the service sector as per the MSMED Act, 2006.

 

Sellers on the TReDS platform are exclusively Micro, Small and Medium Enterprises (MSMEs) that upload their trade receivables for discounting.

 

Buyers include corporates, Government departments, Public Sector Undertakings (PSUs), and other eligible entities that procure goods or services from MSMEs and accept the invoices. The Indian government has mandated that all companies with a turnover exceeding INR 250 crores, registered under the Companies Act, 2013, and all Central Public Sector Enterprises (CPSEs) must register on Trade Receivables Discounting System (TReDS) platforms by March 31, 2025.

 

Financiers comprise banks, Non-banking Financial Companies, and other financial institutions permitted by the Reserve Bank of India (RBI) to provide financing on the platform. These financiers bid competitively to discount the MSME invoices.

 

4. Eligibility criteria for MSMEs to join the TReDS platform as a Seller

Manufacturing Enterprises and Enterprises rendering Services under MSMED Act are only eligible to act as sellers. The eligibility criteria for MSME enterprises to join the TReDS platform as Sellers are given below:

 

Micro Enterprise	Investment in plant and machinery or equipment shall not exceed ₹2.5 crore, and the annual turnover shall be limited to ₹10 crore.
Small Enterprise	Investment in plant and machinery or equipment shall not exceed ₹25 crore, and the annual turnover shall be limited to ₹100 crore.
Medium Enterprise	Investment in plant and machinery or equipment shall not exceed ₹125 crore, and the annual turnover shall be limited to ₹500 crore.

5. TReDS platforms

Several RBI-authorised TReDS platforms are operative in India:

 

     a. Receivables Exchange of India Ltd (RXIL) (https://www.rxil.in/):

A joint venture of SIDBI and NSE.

     b. M1xchange (https://www.m1xchange.com/):

RBI granted approval to Mynd Solutions private Ltd. to set up and operate the TreDS platform named M1xchange.

     c. Invoicemart (https://www.invoicemart.com/):

A joint venture between Axis Bank and mjunction services.

     c.1 WB-TReDS : (https://wbtreds.in/)

Government of West Bengal has approved the adoption of the Invoicemart TReDS platform for MSMEs supplying goods and services to West Bengal State departments and PSUs.

 

Buyer organisations currently onboarded on WB-TReDS:

– West Bengal Small Industries Development Corporation (WBSIDCL)

– West Bengal State Handloom Weavers’ Co-operative Society (TANTUJA)

– Biswa Bangla Marketing Corporation (BBMC)

– West Bengal Handicrafts Development Corporation (MANJUSHA)

1. d. Other platforms like C2FO and DTX (KredX) are also authorised to operate.
2. Creation of factoring Unit

In the TReDS platform, a Factoring Unit (FU) is the standard term used for invoice(s) or bill(s) of exchange that contain details of transactions evidencing the sale of goods or services by MSME sellers to buyers. The FU can be uploaded on the TReDS platform either by the MSME seller in case of ‘Factoring’ or by the buyer in case of ‘Reverse factoring’.

 

7. How Does TReDS Work?

The working of TReDS can be summarised as follows:

 

1. The Seller Initiated Exchange Process (Via Factoring)

1. MSME supplies goods or services and raises an invoice first.
2. The invoice is uploaded on the TReDS platform.
3. The buyer verifies and accepts the invoice online.
4. Financiers place bids to discount the invoice.
5. The MSME selects the most competitive bid.
6. The financier makes payment to the MSME, usually within 24 to 48 hours.
7. On the due date, the buyer pays the financier.

 

1. The Seller Initiated Exchange Process (Via Reverse factoring)

Here, the buyer raises the invoice first. The process is almost same as above.

 

iii. Difference between Factoring and reverse factoring:

 

Particulars	Factoring	Reverse Factoring
Initiator	Supplier-led. Seller uploads the invoice first	Buyer-led. Buyer uploads the invoice first
Financing Cost	Typically, the MSME bears the interest cost	The cost is often borne or negotiated by the buyer.
Discount rate	Higher	Lower. Higher assurance due to early buyer approval
Buyer involvement	Acceptance only	Active participation
Seller benefit	Early cash	Cheaper early cash

 

8. Illustration of Bank Discount Rate Offering on TReDS

If an MSME uploads an invoice of ₹1 lakh with a payment period of 60 days.

 

Bank A offers discounting at 8% p.a.

Bank B offers 9% p.a.

NBFC offers 10% p.a.

 

Financier	Discount Rate (p.a.)	Discount for 60 days	Amount Paid to Seller
Financier A (Bank)	8%	₹1,315	₹98,685
Financier B (Bank)	9%	₹1,479	₹98,521
Financier C (NBFC)	10%	₹1,644	₹98,356

 

• Seller selects Financier A (lowest discount rate).
• Seller receives ₹98,685 within 24-48 hours instead of waiting for 60 days.

• The buyer pays the full invoice amount to the bank on the due date.

 

9. Advantages of using TReDS

For MSME Suppliers

• Faster access to funds without waiting for buyer payment cycles
• Lower cost of finance due to competitive bidding by financiers
• No collateral requirement, as financing is based on buyer creditworthiness
• Fully digital and paperless process
• Improved cash flow, enabling smooth business operations

For Buyers

• Better payable management
• Improved supplier relationships
• No disruption to existing credit terms

For Financiers

• Low-risk, short-tenure assets
• Digitally verified transactions
• Opportunity to expand MSME financing

 

TReDS thus creates a balanced and transparent ecosystem for all stakeholders.

 

10. Conclusion

TReDS is a powerful digital initiative that directly addresses the long-standing issue of delayed payments to MSMEs. By enabling invoice discounting through a transparent and competitive platform, TReDS facilitates prompt cash flow for businesses, lowers financing costs, and promotes financial discipline among buyers. With wider adoption by MSMEs, corporates, and financial institutions, TReDS has the potential to significantly strengthen India’s MSME sector and contribute to sustainable economic growth.