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TReDS is an online mechanism that facilitates financing of trade receivables of micro, small and medium enterprises (MSMEs) through multiple financiers. It also facilitates discounting of invoices of MSME sellers raised against large corporate, thus allowing them to reduce their working capital requirements.

Trade Receivables Discounting System or TReDS is an initiative undertaken by Reserve Bank Of India to safeguard the interest of micro, small and medium enterprises (MSMEs) that, because of large organizations, always finds it very hard to convert their trade receivables into liquid funds in short period. RBI thus by undertaking Trade Receivables Discounting System (TReD) an electronic platform, has mechanized the financing of trade receivables of MSMEs from corporate buyers through two or more financiers is known as Trade Receivables Discounting System wherein all registered MSMEs can discount their bills of exchange or invoice through TReDS with a quoted price. This system will ensure the competitive pricing offer from the financer. The seller can opt for a financer of his choice. TReDS deals with discounting of both invoices and bills of exchange. It was well-equipped with discounting and rediscounting of trade receivables thus facilitating higher volumes of transaction with better pricing subject to supervision of RBI. Participants in TReDS

There are three direct participants involved in the activities of TReDS viz.

  1. MSME Sellers,
  2. Corporate Buyers, and
  3. Financiers.
TReD Mechanism:

TReDS provides an e platform bringing participants together and facilitates uploading, accepting, discounting, trading and settlement of the invoices / bills of exchanges of MSMEs. If required, the bankers of MSMEs and corporate buyers are also made accessible to the system for obtaining information on the portfolio of discounted invoices / bills of respective clients.

The initial advantage is that in TReDS the MSME bills of exchange or invoices are sold to a third (bank or non-banking institution) party at a discounted price, the third party eventually becomes the supplier of materials and receives the payment from the buyer on due date. On discounting of bill, supplier who sold the invoices/bills of exchange to the financer is discharged from liabilities to the financer on account of discounted invoice.

Here the advantage is that the supplier (seller) gets better rate as the rate of discount is decided by the financer on the rating of buyer corporate and not on the rating of the seller. He therefore gets the better pricing in the competitive bidding due to good credit rating of his clients.