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Trade Receivables Discount System (TReDS) – Shanmugam IAS Academy
Discount System

Trade Receivables Discount System (TReDS)

The privately owned power generating companies which are reeling under escalating dues because of pending payment from states and litigation, have asked the ministry of power to set up a ‘Trade Receivables Discount System’ for the same as like as the MSME sector has.

TReDS (Trade Receivables Discount System)

Micro, Small and Medium Enterprises (MSMEs) plays an important role in the economic fabric of the country but it continue to face constraints in obtaining adequate finance, particularly in terms of their ability to convert their trade receivables into liquid funds.

In order to address the above constraints of MSMEs RBI want to provide an institutional mechanism called TReDS for financing trade receivables and to raise the adequate funds from multiple financers.

(Trade receivables are amounts billed by a business to its customers when it delivers goods or services to them in the ordinary course of business.  Invoicesare list of goods sent or services provided, with a statement of the sum due for these.)

What exactly is TReDS (Trade Receivables Discount System)?

  • TReDs is a scheme for setting up and operating the institutional mechanism to facilitate the financing of bills of MSMEs from corporate and other buyers, including government departments and public sector undertakings (PSUs).
  • MSME sellers, corporate and other buyers, including the government departments and PSUs, and financiers (both banks and NBFCs) will be direct participants in the TReDS.
  • The TReDS will provide the platform to bring these participants together for facilitating uploading, accepting, discounting, trading and settlement of the invoices or bills of MSMEs.
  • The TReDS should have a minimum paid up equity capital of 25 crore rupees and it will not allow any credit.
  • Among all the entities only promoters will be permitted to have shareholding in excess of 10 percent of the equity capital of the TReDS.
  • The foreign shareholding in the TReDS would be as per the extant foreign investment policy.
  • TReDS should have sound technological basis to support its operations, be able to provide electronic platform for all the participants and information about bills, discounting and quotes should be in real time supported by a robust information system.
  • The TReDS shall have a suitable Business Continuity Plan (BCP) including a disaster recovery site and shall have an online surveillance capability which monitors positions, prices and volumes in real time so as to check system manipulation.

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