TReDS a good alternate source of funding for MSMEs: Say experts at PHDCCI Video Conference

“TReDS a good alternate source of funding for MSMEs” said experts while deliberating at a Video Conference on Trade Receivables Discounting System organized by PHD Chamber of Commerce and Industry (PHDCCI) here today. It was observed that TReDS allows MSMEs to receive money upfront which helps them to resolve their working capital problems, creating room for a more productive and financially sound business environment.

Welcoming the speakers and participants, Mr. Mohit Jain, Chairman, Haryana State Chapter, PHDCCI said that MSMEs are the back bone of Indian Economy and despite the important role played by them in country’s overall economic growth, they continue to face constraints in obtaining adequate finance, particularly in terms of their ability to convert their trade receivables into liquid funds. TReDS offers a promising platform for solving their working capital issues and in today’s program, experts shall highlight the benefits of this platform.

Presenting the Industry perspective Mr. Anil Khaitan, Former, President and Mentor, PHD-MSME Mentoring & Guidance Centre stated discounting receivables can be a good source of finance for the cash starved MSMEs, particularly because it is an off balance sheet finance. He said that although the Government had mandated all big Corporates and Central Government PSUs to register on TReDS platform but very few of them have come on board on this platform.

Mr. Khaitan welcomed RBI’s step to classifying TReDS as a priority lending sector. He suggested that automation can be a solution for delayed payments on TReDS platform as the invoice seller will automatically receive the payment on time.

In his Key Note Address, Dr. H P Kumar, Former CMD, NSIC and Advisor, PHD Chamber said that although more than 1.3 crores enterprises are registered under GST but the number of companies availing services of TReDS platforms is very low. The reason for this could be lack of awareness. He said that negligible number of PSUs and big corporate for registered as buyers on this platform because the registration fee is very high. The requirement of credit rating and a turnover of more than Rs. 500 corers to register on TReDS platform are also holding back many buyers.

Mr. Kumar mentioned that RBI has given licenses to only three entities to run TReDS platform which inadequate considering the size of our country and gives access to very limited number of companies.

Mr. Kumar informed that MSMEs can take assistance from the Chamber’s PHD-Mentoring and Guidance Centre on various issues ranging from project conceptualization, training, funding resources etc.

Mr. Jacob Raphael, COO, M1xchange made a presentation on Registration and Benefits of TReDS Scheme. While explaining the process of discounting invoices, he informed that the Trade Receivables Discounting System (TReDS) is a digital platform that allows small businesses to get access to working capital by auctioning their trade receivables. On this electronic platform for auctioning of trade receivable, a financier (bank or NBFC) bids for a bill (trade receivable) from a seller (SME) before its due date or before the buyer makes the payment on the bill.

Mr. Raphael said that to ease the TReDS platform registration process, M1xchange has simplified the steps of on-boarding. A user can simply fill a small form by clicking here and can register on the TReDS platform with one-time documentation.

Explaining the bidding process on M1xchange, Mr. Raphael informed that the Supplier raises the invoice and the Buyer verifies the same. This enables the financiers which are also the invoice factoring company to bid against the verified invoice. Once the supplier accepts the bid, the payment is processed and credited to the supplier’s account.

The financier offers credit to the seller at a discounted rate of interest which is generally 5% less than banks and other sources. In this process, the seller may get a steep discount on the rate of interest for working capital, without the need of any collateral security. He said M1xchange is gaining popularity and now many Indian and Foreign Banks are its active partners.

Sharing the Government of India Initiatives on TReDS, Mr. Sanjeev Chawla, Director, MSME-DI stated that TReDS is a good mechanism for MSMEs to fulfil their liquidity requirements. He informed that GOI is trying to disseminate information regarding this useful platform. He mentioned that the Government has launched a CHAMPION Portal to empower MSMEs and address their grievances. Besides this the MSME Samadhan Portal is also available for realizing the delayed payments of SMEs from both public and private buyers.

Mr. Chawla invited suggestions from the MSMEs for further improving the TReDS platform.

Thanking the speakers and participants, Adv Lokesh Jain, Chairman, MSME Committee, Haryana State Chapter, PHDCCI assured Mr. Sanjeev Chawla that PHDCCI will collate and forward all the suggestions and grievances received from the participants to the Government for necessary action.