MUMBAI: The trade receivables discounting system (TReDS) has been instrumental in addressing the long-standing issue of delayed payments for micro, small, and medium enterprises (MSMEs). It has offered a much-needed boost to their cash flows and addressed their financing requirements, according to RBI deputy governor Michael Patra.
TReDS is an online platform that helps small businesses (MSMEs) in India get paid faster for their invoices. It’s an online marketplace where they can sell their unpaid invoices (receivables) to financiers (banks, NBFCs, etc) at a discounted rate. This gives them quick access to working capital, which is crucial for their growth and operations.
Patra said that MSMEs often face cash flow challenges due to delayed payments from larger buyers. This impacts their ability to reinvest in their businesses, manage day-to-day operations, and scale up.
“TReDS has effectively bridged the credit gap by enabling MSMEs to promptly convert their trade receivables into liquid funds. This ensures that small businesses do not have to wait endlessly for payments,” he said, adding, “This competitive environment helps MSMEs secure financing at rates much lower than traditional bank loans.”
TReDS has helped address the credit gap of MSMEs — estimated at around Rs 52 lakh crore — by connecting them with banks and clients, reducing funding costs up to 2.5 percentage points, Patra said. “The value of invoices financed through TReDS have surged more than 23 times. As of Oct 2024, around 5,000 active fintechs are involved in providing various financial and technical solutions to businesses, including MSMEs, helping businesses better manage their operations and improve supply chain finance,” Patra said.
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