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Business Compliance & Labour Law

TReDS — Trade Receivables Discounting System

TReDS

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Regulatory Framework

Trade Receivables Discounting System (TReDS) is an electronic platform, regulated by the Reserve Bank of India under the Payment and Settlement Systems Act, 2007, that enables MSME sellers to discount their trade receivables from corporate, government, and PSU buyers without recourse to the seller. Three RBI-licensed TReDS platforms currently operate: RXIL, M1xchange, and Invoicemart.

Mandatory onboarding: Ministry of MSME Notification dated 7 November 2024 requires every company registered under the Companies Act, 2013 with annual turnover exceeding ₹250 crore, along with all Central Public Sector Enterprises (CPSEs), to register as a buyer on a TReDS platform by 31 March 2025 — this supersedes the earlier ₹500 crore threshold set by the November 2018 notification.

Purpose: TReDS enables MSME sellers to receive early payment (discounted by a financier/bank on the platform) instead of waiting out the buyer's payment cycle, supporting the 45-day payment timeline for MSME suppliers under Section 15 of the MSMED Act, 2006. Financiers bid competitively on uploaded invoices, and the buyer's payment on the due date settles the transaction.

Overview

TReDS services cover the participation of the MSME suppliers and the corporate buyers in the Trade Receivables Discounting System — the RBI-regulated electronic platforms on which the MSME suppliers discount their receivables from the corporate buyers, with the banks and the NBFCs financing them through the competitive bids. The services cover the onboarding, the invoice financing and the settlement for the suppliers, and the acceptance and the discounting for the buyers, under the RBI's TReDS framework.

TReDS is the platform where the MSME's receivable meets the financier's bid — the buyer accepts the invoice, the financiers bid the discount, and the supplier is paid in days. The platform removes the informal and the high-cost financing of the MSME's receivables and replaces it with the regulated, competitive discounting. For the corporate buyers, the platform's acceptance is the tool that settles their suppliers without the cash.

The cost of staying off the platform is the high-cost and the informal financing of the receivables, the delayed supplier payments, and the working capital that the MSME finances at the worst rates.

This service is for MSME suppliers and the corporate buyers using TReDS. We onboard the parties on the platforms, manage the invoice submission and the acceptance, evaluate the bids and the discount, manage the settlement and the credit lines, and review the discounting costs so the MSME's receivables convert to cash at the platform's competitive rates.

How It Works

  1. 1

    Platform Onboarding

    We onboard the parties on the TReDS platforms.

    Harun Raaj & Associates does this1-2 weeks
  2. 2

    Invoice & Acceptance

    We manage the invoice submission and the buyer acceptance.

    Harun Raaj & Associates does thisOngoing
  3. 3

    Bid Evaluation

    We evaluate the financier bids and the discount.

    Harun Raaj & Associates does thisOngoing
  4. 4

    Settlement

    We manage the settlement and the credit lines.

    Harun Raaj & Associates does thisOngoing
  5. 5

    Cost Review

    We review the discounting costs and the cycle.

    Harun Raaj & Associates does thisMonthly

Frequently Asked Questions

Who is eligible to onboard as a seller on a TReDS platform?
Only Micro, Small, and Medium Enterprises (MSMEs) as defined under Section 7 of the Micro, Small and Medium Enterprises Development Act 2006 (MSMED Act) are eligible to participate as sellers on TReDS platforms. The enterprise must hold a valid Udyam Registration Certificate issued under the Ministry of MSME's Udyam Registration portal. The RBI's Master Directions on Trade Receivables Discounting System (Reserve Bank of India (Trade Receivables Discounting System) Directions, 2021) restrict seller participation to MSMEs to protect small enterprises' cash-flow rights. Entities whose MSME registration has lapsed or been cancelled are not eligible to upload invoices on TReDS until re-registration is completed.
Are large corporates required by law to register on TReDS?
Yes. The Ministry of MSME issued a notification dated 2 November 2021 under Section 9 of the MSMED Act 2006 making it mandatory for all companies with a turnover of ₹500 crore or more, and all Central Public Sector Enterprises, to onboard at least one TReDS platform. Non-compliance exposes a buyer to action under Section 22 of the MSMED Act 2006, which requires interest at three times the RBI bank rate on delayed payments beyond the agreed credit period (maximum 45 days). The Department for Promotion of Industry and Internal Trade (DPIIT) monitors compliance through the SAMADHAAN portal. We assist corporate buyers in completing onboarding documentation, factoring agreements, and RBI-prescribed KYC requirements on platforms such as Receivables Exchange of India Ltd (RXIL), A.TReDS (Axis Bank), or M1xchange.
What is the maximum credit period permitted between an MSME seller and a corporate buyer on TReDS?
Section 15 of the Micro, Small and Medium Enterprises Development Act 2006 requires every buyer to make payment to an MSME supplier within the agreed period or, where no agreement exists, within 15 days. Section 2(b) of the MSMED Act 2006 caps the maximum permissible credit period under any written agreement at 45 days from the day of acceptance of goods or services. On TReDS, invoices can be uploaded only within this 45-day ceiling per the RBI Master Directions on TReDS (2021). If a buyer delays beyond this period outside TReDS, compound interest at three times the bank rate notified by RBI is payable under Section 16 of the MSMED Act 2006.
How are gains or charges on TReDS discounting treated for GST purposes?
The discounting of trade receivables by a TReDS-licensed financier constitutes a financial service exempt from GST under Entry 27 of Notification No. 12/2017-Central Tax (Rate) dated 28 June 2017, which exempts services by way of extending deposits, loans, or advances where the consideration is in the form of interest or discount. However, any separate processing fee, platform fee, or administrative charge levied by the TReDS platform operator is taxable at 18% GST under SAC 9971. The MSME seller receives the net discounted amount; there is no GST liability for the seller on the sale of receivables itself. Corporate buyers should ensure their AP team does not incorrectly treat the discount charge as a deductible TDS-applicable payment — it is not subject to TDS as it is paid to an RBI-licensed entity.
What documents does an MSME seller need to upload invoices on a TReDS platform?
To onboard as a seller, an MSME must submit its Udyam Registration Certificate, GST registration certificate, cancelled cheque for the designated bank account, KYC documents (PAN, Aadhaar or incorporation documents), and a Board Resolution or authorisation letter for the designated signatory. For each invoice uploaded, the platform requires the GST-compliant tax invoice issued under Section 31 of the CGST Act 2017, a buyer acceptance or acknowledgement, and confirmation that goods or services have been delivered. The RBI Master Directions on TReDS (2021) require the platform to verify buyer acceptance before financing is released. We assist sellers in structuring their accounts receivable process so that invoices are GST-compliant and accepted by buyers within the 45-day window to maximise TReDS eligibility.

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