TReDs & MSME Financing: Unlocking Growth with Faster Payments

The Trade Receivables Discounting System (TReDs) is a digital platform regulated by the Reserve Bank of India (RBI) that enables Micro, Small, and Medium Enterprises (MSMEs) to access working capital by discounting their trade receivables. By facilitating invoice discounting through an electronic bidding system, TReDs helps MSMEs convert outstanding invoices into cash flow, eliminating delays in payments from corporate buyers and improving liquidity.

Key Benefits of TReDs for MSMEs

• Immediate Access to Funds Without Collateral: MSMEs can monetize invoices without pledging assets, reducing financial constraints.
• Competitive Financing Rates: The auction mechanism allows financiers to bid for invoices, ensuring lower interest rates compared to traditional loans.
• Reduction in Working Capital Stress: Early payments enable businesses to meet operational expenses and reinvest in growth.
• Compliance with MSME Payment Mandates: Large buyers must adhere to the MSME Act, which mandates payments within 45 days, preventing payment delays and penalties. 
• Improved Business Stability: Access to predictable cash flow enables better financial planning and vendor confidence.

By bridging the liquidity gap, TReDs ensures smoother financial operations, allowing MSMEs to maintain supply chain efficiency and reinvest in business expansion without worrying about payment delays. 

When Should You Use TReDs for Your Business?

TReDs is a game-changer for MSMEs and businesses facing cash flow challenges due to delayed receivables. MSMEs that frequently deal with long credit cycles and payment delays from large corporate buyers can benefit immensely from this platform. Here are some key scenarios where adopting TReDs makes sense:

• Struggling with Long Credit Cycles: If your business supplies to large corporations that offer extended payment terms, TReDs allows you to unlock cash without waiting for 60-90 days.
• Need for Faster Working Capital Access: MSMEs can discount invoices and receive payments within 24 hours, reducing reliance on high-interest loans.
• Dealing with Delayed Payments from Large Buyers: Under the MSME Development Act, large businesses must settle dues within 45 days. TReDs ensures compliance by automating payment tracking.
• Scaling Business Operations Without Additional Debt: By leveraging TReDs, MSMEs can expand without burdening their balance sheets with additional loans.
• Navigating Seasonal Demand Fluctuations: Businesses that experience seasonal cash flow variations can use TReDs to maintain stability and meet operational demands.

By leveraging TReDs, businesses can reduce financial strain and improve cash flow predictability, ensuring smoother financial planning and growth.

Key Modules of a TReDs Platform

A TReDs platform facilitates a transparent and structured invoice discounting process, involving multiple stakeholders such as MSME suppliers, corporate buyers, and financiers (banks and NBFCs). Here’s how it works: 

Invoice Upload and Verification

• MSME suppliers upload their trade invoices on the platform.
• Corporate buyers verify the invoices and approve them for financing.
• This step ensures authenticity and prevents fraudulent discounting.

Competitive Bidding by Financiers

• Once an invoice is approved, multiple banks and NBFCs bid to offer financing.
• This ensures that MSMEs receive the most competitive discounting rates.
• The supplier can choose the best financing offer based on cost and flexibility.

Buyer Approval and Fund Disbursement

• After selecting a financier, the corporate buyer reconfirms the transaction.
• The financier releases the discounted amount to the MSME supplier, usually within 24 hours.
• The balance amount is settled by the corporate buyer on the agreed due date.

Automated Repayment Tracking

• The buyer repays the financier on the due date, ensuring a seamless transaction.
• Automated tracking ensures compliance with MSME payment regulations.
• No manual follow-ups are needed, reducing administrative burden.

The entire process is digitized, reducing paperwork, improving efficiency, and eliminating disputes over delayed payments. By providing transparency and ensuring timely transactions, TReDs fosters stronger buyer-supplier relationships. 

How CashFlo Enhances TReDs for Enterprises 

CashFlo’s advanced TReDs solutions take invoice discounting to the next level by offering:

• Extended Payable Periods: Corporate buyers can extend payment cycles up to 180 days, benefiting both MSME and non-MSME vendors.
• Access to a Large Marketplace of Financiers: Businesses can obtain competitive financing rates from a vast network of banks and NBFCs.
• Automated MSME Payment Compliance: Ensures 45-day MSME payment compliance through real-time tracking and automated alerts.
• Seamless Vendor Onboarding and Engagement: CashFlo simplifies vendor onboarding, making TReDs adoption effortless for businesses. 
• Integration with ERP Systems: Enterprises can directly integrate with their ERP solutions, streamlining invoice discounting without disrupting existing workflows.
• AI-Driven Credit Decisioning: CashFlo’s platform uses AI to match businesses with the most suitable financiers based on creditworthiness and transaction history.

By offering an end-to-end solution, CashFlo optimizes working capital management, ensuring liquidity for MSMEs while allowing corporate buyers to manage their cash flows efficiently.

Conclusion

TReDs is revolutionizing MSME financing by providing a structured and transparent mechanism for early payments. It significantly reduces dependency on traditional loans, enhances cash flow, and ensures compliance with payment mandates. Businesses leveraging TReDs benefit from:

• Faster access to funds without additional debt
• Stronger buyer- supplier relationships through timely payments
• Optimized working capital cycles for sustainable growth
• Compliance with MSME regulations, avoiding penalties and disputes

CashFlo has already facilitated over ₹24,000 Cr in invoices, helping businesses unlock working capital and streamline their financial operations. With its innovative approach, CashFlo enables enterprises to manage liquidity efficiently, strengthening supply chain resilience and financial stability.

Schedule a Demo Today to experience how TReDs can transform your business with CashFlo. 

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