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MSME suppliers can get their invoices discounted at lower interest rates on TReDS

What is TReDS?
It is an electronic platform that allows auctioning of trade receivable. The process is also commonly known as ‘bills discounting’, a financier (typically a bank) buying a bill (trade receivable) from a seller of goods before it’s due or before the buyer credits the value of the bill. In other words, a seller gets credit against a bill which is due to him at a later date. The discount is the interest paid to the financier.
Who are the various stakeholders in the ecosystem?
Seller, say, for instance, a garment manufacturer or an automobile spare parts manufacturer; buyer, say, for instance, a big retailer like Pantaloons or D-Mart or a bike manufacturer like Honda or Bajaj; financier, mostly a bank or a factoring company which gives an advance to the seller against a bill due to him from the buyer; and discounting platform provider. As per RBI TReDS guidelines, only MSMEs can participate as sellers, while banks, non-banking financial companies and factoring companies are permitted as financiers.

Micro, small and medium enterprises (MSMEs) supplying to top-notch corporates can get their invoices discounted at or close to banks’ benchmark lending rates if they get on to the Trade Receivables Discounting System (TReDS).

This is so because financiers — banks and non-banking finance companies (who are into factoring business) — discount suppliers’ invoices on the TReDS platform based on the strength of the corporate buyers’ credit rating.

In other words, MSME suppliers can get their invoices discounted at lower interest rates on TReDS if their corporate buyers’ credit rating is strong.

Currently, there are two TReDSs — RXIL (India’s first TReDS platform established by SIDBI in partnership with NSE and three banks (SBI, ICICI Bank and YES Bank) and A.TREDS (a joint venture of Axis Bank and mjunction service) — in the country. They are Reserve Bank of India approved online marketplaces that bring together buyers, sellers and financiers.

Buyers, sellers and financiers have to execute bilateral agreements with the TReDS platform to transact.

Click to find more from RBI guidelines

Click to find more from RXIL portal

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