India- By using TReDS MSMEs get access to their receivables within 2-3 days from the date of acceptance, says Abhay S Rathore, VP M1Xchange

(MENAFN- KNN India) By using TReDS MSMEs get access to their receivables within 2-3 days from the date of acceptance, says Abhay S Rathore, VP M1Xchange

New Delhi, Jan 31 (KNN) To enable the Micro and Small Enterprises (MSEs) from availing maximum benefit from the Trade Receivable Discounting System ( TReDS ) portal, the government is now ensuring that all CPSEs register on the platform and help their suppliers too in getting onboard the TReDS platform.

TReDS, an online bill discounting platform that helps cash-starved MSMEs raise funds by selling their trade receivables to corporates, was introduced by the Reserve Bank of India (RBI) in 2014. In 2017, RBI issued licence to three players, M1Xchange being one of them.

M1xchange TReDS facilitateS the discounting of invoices and bills of exchange on a PAN India basis. Recently, M1xchange crossed Rs 5000 crores worth transaction which nearly occupies forty percent of the cumulative transaction conducted by all three platforms, making M1xchange India's trusted and leading TReDS platform.

To know more about TReDS and how the MSMEs can take advantage of it, KNN India interviewed Mr Abhay Singh Rathore, Vice President & Head Operations, M1Xchange .

Q.  Could you briefly describe about TReDS platform and how the micro, small and medium enterprises (MSMEs) can take advantage of it.

TReDS is an RBI approved digital mechanism to provide MSME a window to crunch the receivable period to the lowest possible levels.

Typically, most MSME receive their money within 45 days from acceptance of invoice. By using TReDS you get access to your receivables within 2-3 days fr0m the date of acceptance. With TReDS you get a collateral free finance against your receivables at much cheaper rates. Being digital, the process is completely transparent and has been made completely secure.

Q. What is the procedure and cost for joining the TReDS platform?

Registration is a simple process which can be done once you provide your KYC/ Agreement/ Application form and auditor certificate confirming your status as MSME

Q. Is a ‘No Objection Certificate' from the bank or permission from the buyer required to register?

No NOC is required either from bank or buyer for joining TReDS. In case MSME is availing working capital facility from bank then they just need to inform TReDS about it & share statement of their working capital account.

Q. Can the supplier be asked to register so that their bills can also be financed?

Manufacturer or a service provider who are MSME can register on TReDS & get their bill discounted.

Q. What is the interest rate charged by the Financial Institutions for financing bills?

Typically interest rates charges by financial institutions is dependent upon financial credibility of the Buyer Corporate & market dynamics. Better the credit rating lower the interest rate. On an average basis it hovers around 8 to 10% per annum basis.

Q. Why have the TReDS platforms not become very popular so far?

Following reasons can be attributable:
Despite Government pushing buyers for TReDS registration & start using it for vendor payment, large number of buyers have still not joined the TReDS.

Several Buyers have joined, however just for compliance purpose & not using it for vendor bill discounting. Eagerness at Buyer end also drives their MSME for registration on TReDS

Ignorance at MSME level about the TReDS despite efforts by Government & TReDS platforms through various channels.

Q. What expectations do you have from the government in the forthcoming budget for popularizing TReDS amongst buyers and sellers?

Improvement in Invoice approval TAT by PSU enterprises is required. Oftentimes the invoice approval and acceptance process takes long and comes close to the due date, which leaves little time for discounting the invoices.

Non availability of NACH in Government Departments: TReDS exchanges are facing challenge in bringing Government departments under TReDS due the fact that vendor payments in Govt. departments is held through PFMS however TReDS mandates payment settlement through NACH (National automatic clearing house). Govt. departments are unable to provide NACH & in present scenario large number of MSMEs working with government departments are deprived of TReDS facility. Government departments may be allowed to use other modes of payment like NEFT / RTGS for payment settlement.

The invoices submission to approval process can be made digital on TReDS platform for PSU's. It could be considered whether Invoices pending approval beyond 15 days could be deemed approved.

To enhance the liquidity for businesses in general and to support the smaller enterprises, all enterprises with turnover up to Rs 250 Cr may be allowed to participate as Sellers to discount their invoices on TReDS. This in turn will help making timely payments to MSME vendors of these enterprises.

It is observed that Invoices raised by MSME on Higher rated corporates (A and above) are discounted by Financiers but Buyers with lower credit rating do not evince much interest among banks. To give comfort for financing of lower-rated corporates a credit guarantee scheme may be implemented for factoring. The Credit Guarantee Fund Scheme for Factoring (CGFSF) has been set up in 2015, but is pending implementation. Features and scope of scheme may be made more suitable and relevant for today's business environment and TReDS.

The other suggestion to increase the comfort level of Financiers is to put in place a mechanism to offer First Loss Default Guarantee on the portfolio. A few Financiers may be willing to selectively discount invoices with recourse to the MSME Sellers, with or without Credit Guarantee Scheme/ FLDG. Hence this product line may also be permitted for TReDS.

Different practices are being followed by banks to treat the exposure of Buyers. Some banks wish to carve out limits for discounting invoices on TReDS fr0m the regular limit sanctioned to the Buyers. But many Buyers borrowers do not agree to this approach as for them the amounts payable to the Sellers are Account Payable and not financial credit/ borrowings. Clarity on the nature of exposure of banks will be helpful.

Allowing participation by NBFCs as soon as possible on TReDS as per the last budget notification.
Integration with GST for validation of genuineness of invoices

Allowing rediscounting of Factoring Units discounted on TReDS, by banks/ FIs / MFs/ NBFCs. (TReDS Guidelines have envisaged rediscounting of Factoring Units). Rediscounting may start with selective rediscounting of individual Factoring Units followed by secondary market trading of portfolio on TReDS.  Apart fr0m making TReDS business more attractive, it would impart additional liquidity and incentivize booking higher volumes for Financiers on TReDS platform. (KNN/ SD)

MENAFN0807202001550000ID1100456842