The Advantages of Trade Receivables Discounting System - M1Xchange
RBI has allowed a few players in the market to introduce Trade Receivables Discounting System. It is a type of online platform wherein Micro, Small as well as Medium Enterprises (MSMEs) which can have the access to funds by auctioning the trade receivables. Trade receivables discounting system is a platform used for financing trade receivables. TReDS has facilitates the discounting of both invoices and bills of exchange.
What is TReDS?
TReDS is a remarkable platform where MSMEs can auction the trade receivable to get instant fund. It is a process in general language which is known as ‘bills discounting”, here a financier (generally a bank) purchasing the bills from a retailer of goods before it is unpaid. A seller will get funds against the bills that are unpaid to him on a later date.
What are the Advantages of TReDS?
Trade receivables discounting system is offering ample of benefits to the customers.
Here are the lists of TReDS are as follows:
1. It offers an opportunity to trade receivables exchange into instant funds.
2. It helps to allows Micro, Small as well as Medium Enterprises to upload the receivable on the system & get them financed.
3. TReDS helps to put better regulation on business to settle the dues on time.
4. Companies have the top-most benefit of savings on procurement cost from better negotiations of financing term to its sellers.
5. Companies can easily save the financing cost by extending their credit period as well as expanding their payment cycle.
6. Bankers have provided a great opportunity to build PSL asset collection.
Trade receivables discounting system will gives MSMEs greater access to finance as well as it also puts greater discipline on corporate to pay the dues on time. Trade receivables discounting system can be useful helps up to a great extent. It is a regulatory framework which will enable the MSME suppliers for NTPC Ltd to perfectly access working capital.
The scheme of setting up as well as operating the institutional mechanism is basically used for facilitating the financing of trade receivables of MSMEs from corporate & buyers, including Government Departments through multiple financiers who will be known as TReDS.
The best part about the TReDS could deal with receivables factoring as well as reverse factoring so as higher transaction volumes come into system which facilitate better pricing. The transactions which is processed under Trade receivables discounting system will be “without recourse” to MSMEs.
According to RBI guidelines related to TReDS, only MSMEs are able to participate as sellers, while banks, non-banking financial companies & factoring companies are permitted as financiers.
How the System for TReDS work?
The system has to upload the invoice, it then forward to the buyer for further acceptance. As the buyer accepts, the invoice has becomes a factoring unit. After that, the factoring unit then goes for auction; the fanciers will enter their discounting rates. The seller or buyer who is bearing the interest cost will get to accept final bid.
Hence, you can say that TReDS offer ample of benefits. It has the ability which is used to convert trade receivables to liquid funds. Trade receivables discounting system is top-most welcoming initiative taken by the RBI which helps to regulate the trade receivables between MSMEs, large corporations as well as financiers.
Trade receivables discounting system is an ideal choice which is beneficial for the entire economy of nation. Trade Receivable Exchanges like M1xchange helps to standardize the process of funding MSMEs through Invoice Discounting. Therefore, TReDS is a timely as well as effective solution to drive the sector of MSME to the next phase of economy of the India.
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