The RBI has released new guidelines for Trade Receivables Discounting System (TReDS). Let’s know about the TReDS and the new guidelines.
Authorisation of TReDS Platforms
Any entity that wants to set up and operate a Trade Receivables Discounting System (TReDS) platform must obtain authorisation from the Reserve Bank of India (RBI) in accordance with the Master Direction on Authorisation to Operate a Payment System. The applicant must be a company incorporated in India and registered under the Companies Act. Its Memorandum of Association should specifically permit the activity of operating a TReDS platform.
If the applicant is already regulated by any financial sector regulator, it must obtain a No Objection Certificate (NOC) from the concerned regulator and submit its application to RBI within 45 days of receiving the NOC. Entities having Foreign Direct Investment (FDI) must comply with the Government of India’s Consolidated FDI Policy and the applicable foreign exchange management regulations.
Capital Requirements
To obtain authorisation, an applicant must have a minimum net worth of ₹25 crore and submit a certificate from its statutory auditor in the format prescribed by RBI. Existing entities that are already operating TReDS platforms must meet this minimum net worth requirement by March 31, 2028. Further, all authorised TReDS operators are required to maintain the minimum net worth of ₹25 crore on an ongoing basis to ensure their financial strength and operational stability.
What is TReDS?
Trade Receivables Discounting System (TReDS) is an electronic platform introduced by the Reserve Bank of India (RBI) to help Micro, Small and Medium Enterprises (MSMEs) receive payments for their goods and services more quickly. The platform enables MSMEs to convert their unpaid invoices into immediate cash by getting them financed through banks and other financial institutions.
How Does TReDS Work?
When an MSME supplies goods or services to a large company, government department, or public sector undertaking (PSU), it usually has to wait for the payment as per the credit period mentioned in the invoice. Under TReDS, the MSME can upload the invoice on the platform after it is accepted by the buyer. Banks and financial institutions then bid to finance the invoice. The MSME receives the payment immediately after a small discount, while the financier collects the full payment from the buyer on the due date.
Benefits of TReDS
TReDS helps MSMEs improve their cash flow by ensuring faster access to funds. It reduces payment delays, provides transparent and competitive financing options, and minimizes the need for additional collateral. The platform also helps small businesses meet their working capital requirements and continue their operations smoothly.
Importance of RBI’s New Guidelines
The RBI regularly updates TReDS guidelines to strengthen the platform and encourage greater participation by MSMEs, buyers, banks, and financial institutions. The objective is to improve transparency, make invoice financing more efficient, and ensure timely payments to MSMEs. These measures support the growth of small businesses and contribute to the overall development of the economy.
Click here to download RBI Circular on TReDS
