Everything You Need To Know About TReDS:
Financing for small and medium enterprises has been revolutionised over the last few years.
One of the most prominent and well-known methods is the receivable finance model.
Nevertheless, this methodology has several challenges. The extensive verifications and
demanding documentation makes the transaction cumbersome and counterproductive.
The entire process of onboarding is very time-consuming, and therefore, provokes resistance
from genuine buyers and investors.
What is TReDS?
Trade Receivables Discounting System (TReDS) is an electronic platform that allows
businesspersons to trade account receivables such as invoices. This platform is transparent
and enables quick financing for the SMEs. It is also a cheaper alternative to banks and
This process involves three stakeholders; the corporate buyer, the SME supplier, and the
investor/financier. The open system ensures transparency to all stakeholders and is entirely
How Does It Work?
It is an RBI regulated trading platform meant to buy and sell receivables on a bidding model
under the Payments and Settlement System (PSS) Act 2007.
The SME supplier uploads an invoice onto the platform, which is subsequently approved by the
buyer. The invoice is then open for bidding to investors present on the platform. Once the
business accepts a bid that best suits them, the reduced amount is sent to the
company’s bank account within a few days. This gives SMEs an opportunity for quick
access to funding at a reasonably low rate of interest.
Benefits of TReDS:
TReDS helps a businessperson avail funding against pending invoices. Some other benefits are:
- A simplified method of obtaining working capital
- Relatively cheaper rates of interest
- Quick processing and speedy disbursement of funds
- Collateral-free financing
- One-time documentation process
- Off-balance sheet financing (The amount doesn’t reflect as a loan on the balance
- Improves cash flow of the company
TReDS is enabling easy access to finance to SMEs in a short time frame in comparison to
banks and other financial institutions. This is well-known that small and medium businesses
are imperative to the economy in terms of GDP contributions and employment. Despite this,
cash flow challenges still affect these businesses restricting them to grow to their full
Even if a few of these companies are made financially stable, it would help boost the economy
and increase employment. Invoice factoring plays a huge role in helping these types of
companies rejuvenate their cash flow and thereby helping them reach their full potential.
The government has undertaken a lot of effort to support small and medium scale businesses.
Over the last few years, there have been several initiatives to provide speedy funding to
these types of businesses.
It is arguably one of the best times in history for small and medium enterprises to thrive in
the market. And platforms like TReDS have simplified and quickened the process for these
types of businesses to inject capital as required.
It is an acronym for Trade Receivable Discounting System and
refers to is an institutional, digital marketplace for trading
receivables such as pending invoices. The transparency of this
system and the quick processing of funds make it an apt
financing solution for SMEs.
Generally, the following steps are followed while financing
- A Factoring Unit (FU) is updated on a TReDS platform
containing all the details of the invoice
- An investor or financier approves the FU
- The financiers then bid for the FU
- The best bid is selected as per the requirement of the
- The funds are then transferred to by the financier to the
company at agreed terms
- The payment is then returned to the financer on the day
Yes, this platform deals with both factoring and reverse
Yes. Entities of TReDS adopt a KYC process. This process adheres
to KYC direction issued by the RBI in 2016.
No, Handling default payments is outside the scope of the TReDS
This is the file that contains the information regarding the
amount that needs to be credited and debited to the accounts of
all the participants involved in the transaction. It also
contains information on when the amount is due. This file is
generated by TReDS entities the same file is sent to payment
systems for the actual transfer of funds.