TReDS- New way to MSME Finance
MSMEs
are the backbone of the Indian Economy, despite their role in the Indian
economy, the companies face several challenges
such as accessing funds from the formal banking channels, time
delays, increasing demand of collateral by
the financiers.
With
a view to resolve the credit challenges faced in accessing formal banking
channels by MSMEs, RBI set up Trade Receivables Discounting System (TReDS)
platform. TReDS is an electronic exchange that allows transparent and online selling of receivables by MSMEs through Factoring.
Factoring: A factoring transaction begins when a
seller uploads an invoice and creates a Factoring Unit(FU). The FU contains
necessary details of the invoice in digital format, must be accepted by the
buyer before it is sent to financier for bidding. The seller then chooses the
most suitable bid and receives the fund from the financier within 48 hours. On
the due date of payment, the buyer pays the outstanding amount to the
financier.
Reverse Factoring: A reverse
factoring transaction begins when a buyer uploads an invoice on the platform,
on behalf of the seller and creates a factoring unit (FU). An FU contains
necessary details of the invoice in digital format which is sent to the
financiers for bidding. The buyer then chooses the most suitable bid. The
seller receives funds from the financier within 48 hours. On the due date of
payment, the buyer pays the outstanding amount to the Financier.
Process of deployment on the portal:
- First
of all decide which portal to be deployed. (Currently 3 portals are present)
- Thereafter
have a preliminary meeting with its official to have an overview on the
documentation part.
- Through
board resolution decide the authorized official and administrator.
- Thereafter
execute all necessary documents through these officials.
- Execute
master agreement, KYC of both above officials, KYC of the entity, Stamp paper
of proper value.
- Then
hand over the documents to officials for necessary actions i.e. deployment on
TReDS portal.
Payment Mechanism on the portal:
- Market
Timing of Auctions are 9am to 9pm every day.
- Cut
off time is 4pm if before it bid accepted then the settlement will be T+1 after
the cut off time the settlement will be T+2 (Bid Acceptance date + 2 working
days).
- If
the factoring unit is not accepted by anyone on TReDS portal for auction the
buyer will pay directly to seller outside the portal.
Cost Involved in Financing are:
- Interest
cost paid by the buyer/seller as may be decided by them mutually.
- Transaction
charges to TReDS for factoring.
There are three
portals on which registration can be made:
- Receivables
Exchange of India Ltd. (RXIL)= Mumbai based
- TREDS Ltd.
(Invoicemart)= Mumbai based
- Mynd Solutions
(M1 Exchange)= Gurgaon based
By Abhishek Agarwal
