MSME Ministry’s Latest Mandate for Large Enterprises to Join Trade Receivables Discounting System (TReDS)

The Ministry of Micro, Small, and Medium Enterprises (MSME) issued a new directive on November 7, 2024, under the authority granted by Section 9, read with Sub-section (2) of Section 8 and Clause (a) of Sub-section (1) of Section 7 of the Micro, Small, and Medium Enterprises Development Act, 2006 (Act No. 27 of 2006).

This directive requires all companies registered under the Companies Act, 2013, with a turnover exceeding ?250 crore, as well as all Central Public Sector Enterprises (CPSEs), to onboard the Trade Receivables Discounting System (TReDS) platform by March 31, 2025. This new regulation supersedes previous notifications S.O. 5621(E) and S.O. 5622(E), both dated November 2, 2018, and aims to enhance liquidity for MSMEs by ensuring faster receivable processing through digital means.

Benefits of TReDS Onboarding

Enhanced Cash Flow for MSMEs

By mandating large enterprises and CPSEs to onboard TReDS, MSMEs can manage cash flow more effectively through faster payments.

Reduced Payment Delay

This system reduces the risks of delayed payments from larger corporations, ensuring timely receivables for MSMEs.

Broader Financing Access

TReDS offers MSMEs a wider range of financing options with minimal documentation requirements, unlike traditional loans.

This mandate fosters a more robust and transparent supply chain, supporting the government’s goal of a sustainable and supportive financial ecosystem for MSMEs.

What is TReDS?

Trade Receivables Discounting System (TReDS) is an electronic platform established by the Reserve Bank of India (RBI) to facilitate the financing and discounting of trade receivables for Micro, Small, and Medium Enterprises (MSMEs). The primary aim of TReDS is to enhance liquidity for MSMEs by allowing them to convert their trade receivables into cash before the actual payment due date. It involves three main participants: MSME suppliers who discount their receivables, corporate buyers who approve invoices, and financiers (banks and financial institutions) who provide funding. This system is crucial for MSMEs, which often face payment delays from larger buyers.

Key Features of TReDS?

Digital Transactions

TReDS operates entirely online, ensuring a paperless and efficient transaction process.

Competitive Rates

MSMEs can access competitive discount rates through a bidding mechanism from multiple financiers.

No Collateral Required

Unlike traditional loans, TReDS does not require collateral, making it more accessible for MSMEs.

Quick Payments

Once an invoice is approved, payments can be processed rapidly, often within one business day.

Transparent Process

The system promotes transparency among all participants—MSMEs, corporate buyers, and