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 factoring companies. 

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 automated. 

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 sheet)
  • 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 potential.

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.

Government Policies:

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.

FAQs on TreDS:

A. 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.