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As MSMEs struggle with capital, TReDS comes to the rescue. 44% of total bill discounting happens in one year

MSMEs, TReDS, Reserve Bank of India, Trade Receivables Discounting System, bill discounting, invoice discounting, Receivables Exchange of India, RXIL, Mynd Solution, M1xchange, Invoicemart, Axis Bank, mjunction services, Ketan Gaikwad RXIL, Sangram Singh Axis Bank, Sangram Singh, mid-sized companies, credit, working capital, financial stress, covid, pandemic, MSME sector, SME, SMB, corporates, reverse factoring, factoring, credit, bilateral fundingThe three TReDS platforms together have done bill discounting worth Rs 39,000 crores by 31st May 2021.

Credit and Finance for MSMEs: Hit hard by Covid, MSMEs are turning to the Reserve Bank of India-regulated online bill discounting platform Trade Receivables Discounting System (TReDS) to manage their working capital woes.

RBI had introduced the concept in a paper in 2014 and the first TReDS platform Receivables Exchange of India (RXIL) was set up in January 2017. Since then two more platforms: Mynd Solution’s M1xchange; and Invoicemart (a joint venture between Axis Bank and mjunction services) have been given the license to operate.

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But, it was only during the Covid pandemic that TReDS saw an increased uptake from corporates and MSMEs. Of the total invoice discounting that has happened on TReDS, 44 per cent was transacted during the last fiscal, at Rs 17,153 crore, Ketan Gaikwad, MD & CEO at Receivables Exchange of India (RXIL) told Financial Express Online. These three platforms together have done bill discounting worth Rs 39,000 crores by 31st May 2021.

The Covid pandemic brought the realisation in organisations that they are as strong as the weakest link in their supply chain. “In the initial phase of Covid, corporates announced that they will not make payments to their suppliers till the situation improves. But that led to major supply chain disruptions around the country and they realised they have to take care of the smallest component in their supply chain ecosystem,” said Gaikwad.

Today, it is not just medium-sized enterprises that are on TReDS. Of the 24,000 MSMEs registered on the bill discounting platform, 43 per cent are micro and 47 per cent are small enterprises from 560 cities across the country, as per data collated by RXIL from the three platforms.

“While Rs 17,000 crore in one year is a fraction of the factoring when compared to the overall credit flow in the economy, it shows that TReDS is beyond the proof of concept stage and that its stakeholders are finding value in the platform,” said Sangram Singh, Executive Vice President and Head – Commercial Banking Coverage Group, Axis Bank.

The advantages are obvious: a transparent bidding mechanism through multiple financiers, the non-recourse financing for MSMEs, payment to MSMEs within 48 hours of bids being accepted by corporates/PSUs amongst others.

Despite the tremendous benefits, several misconceptions around TReDS remain. Some common ones are the type of charges that will be deducted. Also, while it is a non-recourse facility, there is an apprehension amongst the MSMEs that their credit ratings will get impacted if the buyer defaults. “Most of the MSMEs work in the unorganized sector and more than 50% even today don’t even understand how this works,” said Kamlesh Joshi, Partner at printing solutions provider Code Tech Solutions. He adds that he has found resistance amongst unlisted firms and mid-sized companies to transact on the platform because even a single-day delay in paying dues on TReDS is considered a default.

To increase its adoption, there is a need to spread awareness around the value proposition of the TReDS platforms amongst MSMEs and corporates so there is a clear differentiation that it is not another loan or credit card programme.

To know more about TReDS, do watch Financial Express Online’s webinar on TReDS here.

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