Trade Receivables Discounting System (TReDS)

Why in news?

• Government of India and Reserve Bank of India (RBI) are exploring the integration of the Goods and Services Tax Network (GSTN) with the Trade Receivables Discounting System (TReDS) platforms using an account aggregator.

What is TReDS?

• MSMEs still struggle with unpaid invoices from suppliers. TReDS is an online platform which allows MSME suppliers to discount their invoices, enabling them to receive payments before their due date. The RBI launched TReDS launched in 2018.

What is the main purpose of TReDS?

• The key objective of the TReDS is to facilitate the financing of invoices of MSME vendors drawn on big organisations and other corporates, including Public Sector Undertakings (PSUs) and Government Departments, by discounting by the financiers.
• The participants in this system work together to facilitate, accept, discount, and settle the invoices.
• TReDS primary purpose is to help MSMEs manage their working capital requirements.

Who are the participants in TReDS?

• Sellers, buyers and financiers are the participants on a TReDS platform.
• Sellers:
  • Only MSMEs can participate as sellers in TReDS.
• Buyers:
  • Corporates, Government Departments, PSUs and any other entity can participate as buyers in TReDS.
• Financier:
  • Banks, NBFC and other financial institutions as permitted by the Reserve Bank of India (RBI), can participate as financiers in TReDS.

PRACTICE QUESTION

Consider the following statements regarding ‘Trade Receivables Discounting System (TReDS)’:

1. TReDS is an online platform which allows MSME suppliers to discount their invoices

2. TReDS primary purpose is to help MSMEs to service their long term debts

Which one of the following is correct in respect of the above statements?

(a) Both Statement I and Statement II are correct and Statement II is the correct explanation for Statement I

(b) Both Statement I and Statement II are correct and Statement II is not the correct explanation for Statement I

(c) Statement I is correct but Statement II is incorrect

(d) Statement I is incorrect but Statement II is correct.

Answer