Page 44 - MSME BULLETIN 2022 NEW LAYOUT 19082022.indd

MSME & START-UP BULLETIN, VOLUME 1, ISSUE 1, AUGUST 2022

resulting in fl ow of funds to the MSME with fi nal [Reserve Bank of India’s “Master Direction - Know
payment of the factoring unit being made by the buyer Your Customer (KYC) Direction, 2016” dated
to the fi nancier on due date. In the second phase, February 25, 2016 (as amended from time to time)].
the TReDS would enable further discounting / re-
discounting of the discounted factoring units by the There would be a one-time agreement drawn up
fi nanciers, thus resulting in its assignment in favour of amongst the participants in the TReDS: Master
other fi nanciers. agreement between the financier and the TReDS,
stating the terms and conditions of dealings between
The process fl ow of the TReDS has to enable, at the both the entities.
minimum, the uploading of invoices/bills and creation
of factoring units by the MSME sellers; Its acceptance Master agreement between the buyers and the
by the corporate and other buyers, including the TReDS, stating the terms and conditions of dealings
Government Departments and PSUs, within a specifi ed between both the entities. This agreement should
time limit; discounting, rating and re-discounting of clearly capture the following aspects:
factoring units; sending of notifi cations at each stage
to the relevant parties to the transaction; reporting The buyer’s (corporates and other buyers including
and MIS requirements; and fi nally, generation and Government Departments and PSUs as the case may
submission of settlement of obligations. In case of be) obligation to pay on the due date once the factoring
reverse factoring, the buyer could also create factoring unit is accepted online.
units based on the documents uploaded by the MSME No recourse to disputes with respect to quality of
seller. A brief illustrative outline of the minimum goods or otherwise.
features required in the process fl ow is given in the
Annexure-l. No Set-offs to be allowed.
The Master agreement between the MSME sellers
The actual business, technical and operational
processes and procedures to be followed in the system and the TReDS should state the terms and conditions
of dealings between both the entities. The agreement
will be prepared by the entity operating the TReDS, should also have a declaration / undertaking by the
and will be part of the for the system.
MSME seller that, in resoect of goods and services
The TReEDS may also undertake some random underlying the factoring unit, no fi nance is extended
audits to ensure that the factoring units uploaded by the working capital fi nancing bank and such goods
on the exchange are authentic and based on genuine and services are not charged to the working capital
underlying transactions involving the sale of goods or financing bankers (i.e., finance availed through
services. the TReDS would not be part of existing charge /
hypothecation of its working capital bankers).
TREDS would put in place a standardized mechanism
/ process for on-boarding of buyers and sellers on the In case of fi nancing on the basis of invoices, an
TReDS. This one-time on-boarding process will require assignment agreement would need to be executed
the entities to submit all KYC related documents to the between the MSME seller and the financier.
TReDS, along with resolutions / documents specifi c Alternatively, this asoect may be incorporated in the
to authorized personnel of the buyer, and the MSME agreement between the MSME seller and the fi nancier,
seller. Such authorized personnel would be provided to the effect that any fi nancing transaction on TReDS
with IDs / Passwords for TReDS authorizations (multi- will tantamount to an assignment of receivables in
level). Indemnity in favour of TReDS, if required, may favour of whoever is the fi nancier.
also be given if it is made part of the standardized on-
boarding process. The TReDS will be in Custody of all the
Agreements.
The KYC documentation and its process may be Other procedural aspects of TReDS functioning and
standardized and disclosed to all stakeholders by operations may be incorporated either in the Master
TReDS. As It requires confi rmation of the banker Agreement, if so, necessitated by the participants, or
of the MSME seller / buyer, as the case may be, in the Procedural Guidelines where applicable. In all
the KYC documentation should synchronise with instances, such procedural aspects, even if incorporated
the documentation / verifi cation done by the banks in the Master Agreements, should be in adherence
in adherence fo the extant regulatory requirements to regulatory norms issued from time to time. The

44 The Institute of Cost Accountants of India