Trade Receivables Discounting System (TReDS)
When MSMEs (Micro, Small and Medium Enterprises) in India sell their product or service to a buyer, most of the times, the trade receivables are not converted into liquid funds immediately – either because of agreed payment terms or the long internal processes of the buyer to clear payments. The seller may have to opt for discounting where they agree on certain percentage of discount on trade receivable to get the funds immediately.
However, delay in payments is quite common. This restricts MSMEs of liquid funds that can be used to continue their operations or expand business. Trade Receivables Discounting System (TReDS) platform is the answer to this, where the financiers’ bid for the invoices approved by the buyers. Once the seller accepts the bid, the amount will be transferred in 48 hours thereby solving the problem explained above.
As per Government’s mandate, a company having annual turnover of 500 crore or above should mandatorily enroll in TReDS – however any company that does business with MSMEs still qualify to use TReDS.
Currently, three companies are authorized by the Reserve Bank of India to run and operate TReDS platform. We expect the number to grow in the coming years. These platforms support factoring as well as reverse factoring. Based on the agreement between seller and buyer they can opt for either of these two.
Integrating TReDS with Financials ERP
While a company can use TReDS platform to carry out all transactions, for companies that use their own Financials ERP (Peoplesoft, Oracle, SAP, etc..,), it is imperative to integrate these systems. This will ensure the benefits of both the systems are realized:
- Sellers will get their payments on time (by way of financing in TReDS)
- Paperwork with seller and financier can be avoided as the platform will take care of that
- Invoice approval workflow and other associated workflows used in ERP can still be used
- Reports are up to date with the payment schedules
- Integration with third party systems will ensure automated completion of the business process
These are just few of the benefits, and there are more. Since most of the businesses dealing with MSMEs have started using the platform, there is no better time than now to integrate with your existing ERP.
Contact us to know more about integrating TReDS with your application and how to derive benefits.