Delayed payments are one of the biggest challenges faced by Micro, Small and Medium Enterprises (MSMEs) in India. Even after supplying goods or services on time, MSMEs often wait 60–120 days to receive payments from large buyers. To solve this cash flow problem, the Government of India and RBI introduced TReDS – Trade Receivables Discounting System.
This article explains what TReDS is, how it works, its benefits, eligibility, and why MSMEs should use it.
What is TReDS?
TReDS (Trade Receivables Discounting System) is an online digital platform where MSMEs can discount their invoices and receive payments quickly from banks and financial institutions.
Instead of waiting for the buyer to pay later, MSMEs can get money within 1–2 days by selling their approved invoices to financiers through TReDS.
👉 TReDS is regulated by the Reserve Bank of India (RBI).
Why TReDS is Important for MSMEs
Most MSMEs sell to:
- Large corporates
- PSUs
- Government departments
These buyers usually pay after long credit periods. TReDS helps MSMEs by:
- Improving working capital
- Reducing dependence on costly loans
- Ensuring timely cash flow
- Lowering payment risk
How Does TReDS Work? (Step-by-Step)
Here’s a simple breakdown:
Step 1: MSME Supplies Goods or Services
The MSME supplies goods/services to a corporate or PSU buyer.
Step 2: Invoice Upload
The MSME uploads the invoice details on the TReDS platform.
Step 3: Buyer Acceptance
The buyer verifies and accepts the invoice digitally.
Step 4: Bidding by Financiers
Banks and NBFCs bid to finance the invoice at competitive discount rates.
Step 5: MSME Gets Payment
The MSME receives funds (after discount) within 24–48 hours.
Step 6: Buyer Pays Financier
On the due date, the buyer pays the financier directly.
📌 Key Point: MSME does not chase payments—the financier does.
Who Can Use TReDS?
Eligible MSMEs
- Registered under Udyam Registration
- Suppliers of goods or services
- Selling to corporates, PSUs, or government entities
Eligible Buyers
- Large corporates
- Public Sector Undertakings (PSUs)
- Government departments
Financiers
- Banks
- NBFCs authorized by RBI
Benefits of TReDS for MSMEs
1. Faster Payments
Get funds in 1–2 days instead of 60–90 days.
2. No Collateral Required
Invoice-based financing—no property or asset needed.
3. Lower Interest Cost
Competitive bidding reduces financing cost.
4. Improved Cash Flow
Better liquidity helps in:
- Paying suppliers
- Salaries
- Business expansion
5. Reduced Credit Risk
Buyer’s creditworthiness matters, not MSME’s balance sheet.
TReDS vs Traditional Bank Loan
| Feature | TReDS | Bank Loan |
|---|---|---|
| Collateral | Not required | Usually required |
| Approval time | 1–2 days | Weeks |
| Interest cost | Lower | Higher |
| Risk | Buyer risk | MSME risk |
| Paperwork | Minimal | Heavy |
TReDS Platforms in India
Currently, RBI has approved three TReDS platforms:
MSMEs can register on any one or more platforms.
Documents Required for TReDS Registration
- Udyam Registration Certificate
- PAN Card
- GST Registration
- Bank Account Details
- Authorized Signatory Details
- Buyer details
Is TReDS Mandatory?
- For MSMEs → Voluntary
- For certain corporates & PSUs → Mandatory registration (as per government guidelines)
Even if your buyer is registered, MSMEs must register separately to use the platform.
Common Myths About TReDS
❌ TReDS is a loan
✅ It is invoice discounting, not a loan
❌ Only large MSMEs can use it
✅ Even micro enterprises are eligible
❌ Registration is complex
✅ Fully online and simple
How TReDS Helps MSMEs Grow
By ensuring predictable cash flow, MSMEs can:
- Accept larger orders
- Reduce working capital stress
- Avoid delayed-payment penalties
- Focus on growth instead of follow-ups
TReDS directly supports the government’s vision of “Ease of Doing Business” and MSME empowerment.
TReDS FAQs for MSMEs
What is TReDS and why was it introduced for MSMEs?
TReDS, or Trade Receivables Discounting System, was introduced to solve delayed payment problems faced by MSMEs. It allows MSMEs to get early payment for invoices by discounting them through banks and NBFCs on an RBI-regulated digital platform.
How does TReDS solve delayed payment issues for MSMEs?
TReDS helps MSMEs convert unpaid invoices into immediate cash once the buyer accepts the invoice. Instead of waiting 60–90 days, MSMEs receive payment within 24–48 hours, improving cash flow and business stability.
Is TReDS better than taking a working capital loan?
Yes, TReDS is often better than a working capital loan because it does not require collateral, involves lower cost due to competitive bidding, and is based on buyer credit risk rather than MSME financial strength.
Who is eligible to use TReDS in India?
Any MSME registered under Udyam, supplying goods or services to corporates, PSUs, or government buyers, is eligible to use TReDS in India.
Is TReDS mandatory for MSMEs?
No, TReDS is voluntary for MSMEs. However, many large corporates and PSUs are mandated by the government to register on TReDS, which makes it easier for MSMEs to use the platform.
How fast can MSMEs get payments through TReDS?
Once the buyer accepts the invoice and a financier discounts it, MSMEs usually receive payment within one to two working days.
Does TReDS require collateral or guarantee?
No, TReDS does not require any collateral or personal guarantee. Financing is done against approved invoices and the buyer’s creditworthiness.
Who bears the payment risk in TReDS?
The payment responsibility lies with the buyer. After invoice discounting, MSMEs are not responsible for payment delays or defaults.
What is the cost of financing on TReDS?
The cost depends on bidding by banks and NBFCs. Competitive bidding generally ensures lower financing rates compared to traditional MSME loans.
Which are the RBI-approved TReDS platforms in India?
India currently has three RBI-approved TReDS platforms: RXIL, M1xchange, and Invoicemart. MSMEs can register on one or more platforms.
Can service-based MSMEs use TReDS?
Yes, both manufacturing and service MSMEs can use TReDS, provided the buyer accepts the invoice on the platform.
Is GST mandatory for TReDS invoices?
Yes, GST registration is usually mandatory as invoices uploaded on TReDS must be GST-compliant.
Can micro enterprises benefit from TReDS?
Yes, micro enterprises benefit significantly from TReDS because it provides quick liquidity without collateral, helping them manage day-to-day expenses and growth.
Can MSMEs register on multiple TReDS platforms?
Yes, MSMEs are allowed to register on more than one TReDS platform to increase financing options and get better discount rates.
Is TReDS safe and reliable for MSMEs?
Yes, TReDS platforms are regulated by the Reserve Bank of India and follow strict security, compliance, and transparency standards.
When should MSMEs use TReDS?
MSMEs should use TReDS whenever they face delayed payments from large buyers and need faster working capital without increasing debt burden.