As per MSME Ministry, all ₹250 Cr+ companies must register by June 30, 2025.
TReDS
Trade Receivables Discounting System (TReDS) is an RBI-regulated platform that helps MSMEs receive faster payments by selling their invoices to banks or financiers. It connects suppliers, buyers, and financiers on a single secure interface, ensuring transparent and efficient transactions. As per the latest government mandate, all companies with a turnover above ₹250 crore must register on TReDS.All about the Government Mandate on TReDS!
What is TReDS
TReDS is a digital platform launched in 2018 to improve cash flow for Micro, Small, and Medium Enterprises (MSMEs). The platform allows small businesses to upload unpaid invoices, which multiple banks and NBFCs finance through a transparent bidding process. Corporates, government departments, PSUs, and other eligible entities can participate as buyers on TReDS. By registering on TReDS, small businesses can access immediate, collateral-free funding to meet their working capital needs.
Why TReDS Was Introduced
TReDS was introduced to create a transparent and efficient system for MSMEs to receive timely payments and improve liquidity. Initially, only three entities were authorised to operate TReDS platforms. To encourage wider participation, the Reserve Bank of India introduced the ‘on-tap’ authorisation framework in October 2019.
Below are the key reasons for introducing TReDS:
Resolving Delayed Payments: MSMEs often face long payment cycles from large buyers, which disrupt their cash flow. TReDS helps overcome this challenge by providing a structured and digital mechanism for faster settlements. TReDS allows MSMEs to receive payments soon after invoice approval.
Improving Access to Working Capital: Through TReDS, MSMEs can convert their unpaid invoices into instant cash, ensuring steady liquidity for day-to-day operations. As the financing is based on the buyer’s credit profile, MSMEs can access funds without pledging collateral or additional security.
Enhancing Transparency and Efficiency: The platform fully digitises invoice financing, reducing manual paperwork and delays. It provides suppliers, buyers, and financiers with complete visibility of transactions. TReDS ensures fair, transparent, and timely processing of credit.
Encouraging Competitive Financing: Multiple banks and NBFCs participate on the platform to finance invoices. This competitive process allows MSMEs to obtain better discounting rates and lower financing costs than traditional funding options.
Formalising the Receivables Market: Under RBI regulation, TReDS brings structure, accountability, and reliability to MSME receivables financing. It reduces dependence on informal credit sources and encourages the use of formal financial channels.
Promoting Financial Inclusion and Innovation: The on-tap authorisation framework introduced by the RBI allows more entities to operate TReDS platforms. This expansion drives innovation, improves accessibility for smaller MSMEs, and promotes financial inclusion across the business ecosystem.
Below are the key reasons for introducing TReDS:
Resolving Delayed Payments: MSMEs often face long payment cycles from large buyers, which disrupt their cash flow. TReDS helps overcome this challenge by providing a structured and digital mechanism for faster settlements. TReDS allows MSMEs to receive payments soon after invoice approval.
Improving Access to Working Capital: Through TReDS, MSMEs can convert their unpaid invoices into instant cash, ensuring steady liquidity for day-to-day operations. As the financing is based on the buyer’s credit profile, MSMEs can access funds without pledging collateral or additional security.
Enhancing Transparency and Efficiency: The platform fully digitises invoice financing, reducing manual paperwork and delays. It provides suppliers, buyers, and financiers with complete visibility of transactions. TReDS ensures fair, transparent, and timely processing of credit.
Encouraging Competitive Financing: Multiple banks and NBFCs participate on the platform to finance invoices. This competitive process allows MSMEs to obtain better discounting rates and lower financing costs than traditional funding options.
Formalising the Receivables Market: Under RBI regulation, TReDS brings structure, accountability, and reliability to MSME receivables financing. It reduces dependence on informal credit sources and encourages the use of formal financial channels.
Promoting Financial Inclusion and Innovation: The on-tap authorisation framework introduced by the RBI allows more entities to operate TReDS platforms. This expansion drives innovation, improves accessibility for smaller MSMEs, and promotes financial inclusion across the business ecosystem.
Legal & Regulatory Framework
The Trade Receivables Discounting System (TReDS) operates under the Payment and Settlement Systems Act, 2007 (PSS). This regulatory framework was established by the Reserve Bank of India (RBI) to oversee and manage TReDS functioning. TReDS ensures that all clearing and settlement activities are transparent, secure, and compliant with financial laws. It defines the roles and responsibilities of TReDS operators, MSMEs, buyers, and financiers.
RBI Guidelines under the Payment & Settlement Systems Act, 2007
The RBI has issued specific guidelines to regulate TReDS. Below are some of the key provisions under this framework.
Authorisation under PSS Act: TReDS operators must obtain authorisation from the RBI under Section 7 of the Payment and Settlement Systems Act, 2007, before commencing operations.
Regulated Activities: All clearing and settlement processes on TReDS are governed by RBI’s framework, ensuring standardisation and financial discipline.
Compliance Requirements: The operations and procedures of TReDS platforms must comply with all applicable legal and regulatory provisions issued and updated by the RBI and other relevant authorities.
Participants’ Governance: The activities of MSMEs, corporates, PSUs, government departments, and financiers using TReDS are bound by the same legal standards that govern their respective financial dealings.
Transparency and Supervision: TReDS platforms must maintain transparency, provide fair access to all participants, and adhere to RBI’s oversight mechanisms for data security and transaction reporting.
Amendments and Updates: The framework allows periodic amendments by regulatory authorities to adapt to evolving business and technological needs.
RBI Guidelines under the Payment & Settlement Systems Act, 2007
The RBI has issued specific guidelines to regulate TReDS. Below are some of the key provisions under this framework.
Authorisation under PSS Act: TReDS operators must obtain authorisation from the RBI under Section 7 of the Payment and Settlement Systems Act, 2007, before commencing operations.
Regulated Activities: All clearing and settlement processes on TReDS are governed by RBI’s framework, ensuring standardisation and financial discipline.
Compliance Requirements: The operations and procedures of TReDS platforms must comply with all applicable legal and regulatory provisions issued and updated by the RBI and other relevant authorities.
Participants’ Governance: The activities of MSMEs, corporates, PSUs, government departments, and financiers using TReDS are bound by the same legal standards that govern their respective financial dealings.
Transparency and Supervision: TReDS platforms must maintain transparency, provide fair access to all participants, and adhere to RBI’s oversight mechanisms for data security and transaction reporting.
Amendments and Updates: The framework allows periodic amendments by regulatory authorities to adapt to evolving business and technological needs.
