TREDS (Trade Receivable Electronic Discounting System) By CS Ishan Khanna


Hello Readers,

The reason being you have landed on this page is probably you are googling about TREDS to figure out what exactly treds is or what are the related compliance one has to see. If you are looking for same then this article could be very useful for you.

I have divided this article in different sections so that you will get exactly you are looking for, However, I would suggest you read the entire article to have a better understanding of the same. This article contains:

  • Brief Introduction of Treds
  • Modus of Operandi
  • Compliance related to Treds
Brief Introduction of TReDs

TReDs is an acronym of Trade Receivables Electronic Discounting Systems, It basically an electronic system set up by RBI for easy and quick discounting of Bills for MSME (Micro Small Medium Enterprises), Thus providing quick finance to MSME against their receivable due from Corporates. This will help to reduce gestation/ credit period and default in payments resulting in better receivables management on the part of MSME. On the other hand, it opens new avenues for investment by financial institutions. Thus, it is needless to say it will help in the overall growth of the economy.

Furthermore, MCA  vide its Notification dt. November 2, 2018.

issues the following instructions that all companies registered with the Companies Act, 2013 (18 of 2013) with a turnover of more than Rs. 500 crore (rupees five hundred crores) and all Central Public Sector Enterprises shall be required to get themselves onboarded on the Trade Receivables Discounting System platform, set up as per the notification of the Reserve Bank of India. The Registrar of Companies in each State shall be the competent authority to monitor the compliance of these instructions by companies under its jurisdiction and the Department of Public Enterprises, Government of India shall be the competent authority to monitor the compliance of such instructions by Central Public Sector Enterprises.”

Thus makes an Obligation on part of  Companies which fulfills aforesaid criteria to get themselves onboarded on TReDs platform.

Modus of Operandi

There are four parties involve in any TReDs transaction which is as follows:

i) Corporate Buyer ( Company which procured goods or services from MSME)

ii) Intermediary Exchange ( Service Provider of TReDS)

iii) MSME (Seller of Goods and Services to Corporate)

iv) Financier (Financial Institution for discounting of receivables)

The transaction is initiated between MSME and Corporate where the MSME  supplies Goods or services to Corporate, followed by generation of invoice. Once the invoice is raised, MSME would be required to upload its Invoice on TReDs platform set up by an intermediary with the login provided by the Intermediary.

In this transaction, Intermediary provides the means or the platform where Financier and MSME meet. Thus, one of the primary role of corporate at this stage would be to designate an Intermediary for its on-boarded MSME suppliers. Once an intermediary is designated, MSME Suppler will upload its invoice in the system which will be verified by the  Corporate  Buyer through its login.

After verification only, Such Invoice would be subject to bidding by the financier based in various parameters such as Length of the Credit period, Credit Rating of Corporate Buyer, interest rate etc. On Successful bidding, Invoice amount less discounting rate would be released in favor of MSME on T+2 days.

On Due date for the payment, TReds will automatically deduct the amount from the account of Corporate Buyer in favor of Financier. It should be noted that all the discounting and factoring will be on a non-recourse basis, i.e MSME shall not be liable for any default made by corporate at a later stage.

In case, any invoice which was not able to find a suitable financier shall be subject to payment outside of TReds.
 
Compliance related to Treds

As the aforesaid notification made obligatory on the part one of the company get itself onboarded on TReDs platform. Thus, the primary responsibilities of Corporate are as follows:

i) Designate a Service Provider via Board Resolution.

ii) Authorize Signatories to approve Uploaded Invoices of MSME.

iii) Make timely payments to Financier.
 

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