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MSME & START-UP BULLETIN, VOLUME 1, ISSUE 1, AUGUST 2022
A Brief on TReDS

Source of the Article:

AIDE MEMOIRE ON LENDING TO MICRO, SMALL & MEDIUM ENTERPRISES SECTOR (1st Edition)
published by the erstwhile Banking, Financial Services and Insurance Department of The Institute of Cost
Accountants of India

Introduction Defi nitions
Micro, small and medium enterprises (MSMEs), For the purpose of the Scheme, notwithstanding any
despite their important role in the economic fabric of other defi nition used in any other context, scheme,
the country, continue to face constraints in obtaining law or document, the following defi nitions are used:
adequate fi nance, particularly in terms of their ability Factoring unit -A standard nomenclature used in the
to convert their trade receivables into liquid funds. In TReDS for an invoice or a bill on the system. Factoring
order to address this pan-India issue through setting units may be created either by the MSME seller (in the
up of an institutional mechanism for fi nancing trade case of factoring) or by corporate and other buyers,
receivables, the Reserve Bank of India had published a including Government Departments and PSUs, (in case
concept paper on “Micro, Small & Medium Enterprises of reverse factoring) as the case may be.
(MSME) Factoring-Trade Receivables Exchange” in
March 2014. Financier —Refers to banks, NBFC Factors and
other fi nancial institutions as permitted by the Reserve
Based on the public comments received on the Bank of India participating in the TReDS and accepting
concept paper and the subsequent draft guidelines the factoring unit for fi nancing purpose.
issued for setting up and operating the system, and
interactions held with relevant stakeholders, the Participants
following guidelines have been issued for setting up MSME sellers, corporate and other buyers, including
and operating the Trade Receivables System in the the Government Departments and PSUs, and fi nanciers
country. These Guidelines are issued by Reserve Bank (banks, NBFC factors and other fi nancial institutions as
of India under section 10(2) read with Section 18 of permitted by the Reserve Bank of India) will be direct
Payment & Settlement Systems Act, 2007 (Act 51 of participants in the TReEDS. The TReEDS will provide
2007). the platform to bring these participants together for
facilitating uploading, accepting, discounting, trading
The Trade Receivables Scheme and settlement of the invoices / bills of MSMEs.
The scheme for setting up and operating the The bankers of sellers and buyers may be provided
institutional mechanism for facilitating the fi nancing access to the system, where necessary, for obtaining
of trade receivables of MSMEs from corporate and information on the portfolio of discounted invoices /
other buyers, including Government Departments bills of respective clients. The TReEDS may tie up with
and Public Sector Undertakings (PSUs), through necessary technology providers, system integrators
multiple fi nanciers will be known as Trade Receivables and entities providing dematerialization services for
Discounting System (TReDS). providing Its services.

The TReDS will facilitate the discounting of both Process flow and procedure
invoices as well as bills of exchange. Further, as the The objective of the TReDS is to facilitate fi nancing
underlying entities are the same (MSMEs and corporate of invoices / bills of MSMEs drawn on corporate and
and other buyers, including Government Departments other buyers, including the Government Departments
and PSUs), the TReDS could deal with both receivables and PSUs, by way of discounting by fi nanciers. To
factoring as well as reverse factoring so that higher enable this, the TReDS has to put in place suitable
transaction volumes come into the system and facilitate mechanism whereby the invoice / bill is converted into
better pricing. “factoring unit” as indicated in Annexure-l.

The transactions processed under TReDS will be In the fi rst phase, the TReEDS would facilitate the
“Without Recourse” to the MSMEs. discounting of these factoring units by the fi nanciers

The Institute of Cost Accountants of India 43