- Early MSME payments powered by C2FO
Early MSME payments powered by C2FO
TReDS
Trade Receivables Discounting System (TReDS) is an RBI-regulated platform that helps MSMEs receive faster payments by selling their invoices to banks or financiers. It connects suppliers, buyers, and financiers on a single secure interface, ensuring transparent and efficient transactions. As per the latest government mandate, all companies with a turnover above ₹250 crore must register on TReDS.
What is TReDS
TReDS is a digital platform launched in 2018 to improve cash flow for Micro, Small, and Medium Enterprises (MSMEs). The platform allows small businesses to upload unpaid invoices, which multiple banks and NBFCs finance through a transparent bidding process.
Corporates, government departments, PSUs, and other eligible entities can participate as buyers on TReDS. By registering on TReDS, small businesses can access immediate, collateral-free funding to meet their working capital needs.
Why TReDS Was Introduced
TReDS was introduced to create a transparent and efficient system for MSMEs to receive timely payments and improve liquidity. Initially, only three entities were authorised to operate TReDS platforms. To encourage wider participation, the Reserve Bank of India introduced the ‘on-tap’ authorisation framework in October 2019.
Below are the key reasons for introducing TReDS:
- Resolving Delayed Payments: MSMEs often face long payment cycles from large buyers, which disrupt their cash flow. TReDS helps overcome this challenge by providing a structured and digital mechanism for faster settlements. TReDS allows MSMEs to receive payments soon after invoice approval.
- Improving Access to Working Capital: Through TReDS, MSMEs can convert their unpaid invoices into instant cash, ensuring steady liquidity for day-to-day operations. As the financing is based on the buyer’s credit profile, MSMEs can access funds without pledging collateral or additional security.
- Enhancing Transparency and Efficiency: The platform fully digitises invoice financing, reducing manual paperwork and delays. It provides suppliers, buyers, and financiers with complete visibility of transactions. TReDS ensures fair, transparent, and timely processing of credit.
- Encouraging Competitive Financing: Multiple banks and NBFCs participate on the platform to finance invoices. This competitive process allows MSMEs to obtain better discounting rates and lower financing costs than traditional funding options.
- Formalising the Receivables Market: Under RBI regulation, TReDS brings structure, accountability, and reliability to MSME receivables financing. It reduces dependence on informal credit sources and encourages the use of formal financial channels.
- Promoting Financial Inclusion and Innovation: The on-tap authorisation framework introduced by the RBI allows more entities to operate TReDS platforms. This expansion drives innovation, improves accessibility for smaller MSMEs, and promotes financial inclusion across the business ecosystem..
Legal & Regulatory Framework
The Trade Receivables Discounting System (TReDS) operates under the Payment and Settlement Systems Act, 2007 (PSS). This regulatory framework was established by the Reserve Bank of India (RBI) to oversee and manage TReDS functioning. TReDS ensures that all clearing and settlement activities are transparent, secure, and compliant with financial laws. It defines the roles and responsibilities of TReDS operators, MSMEs, buyers, and financiers.
RBI Guidelines under the Payment & Settlement Systems Act, 2007
The RBI has issued specific guidelines to regulate TReDS. Below are some of the key provisions under this framework.
Authorisation under PSS Act: TReDS operators must obtain authorisation from the RBI under Section 7 of the Payment and Settlement Systems Act, 2007, before commencing operations..
Regulated Activities: All clearing and settlement processes on TReDS are governed by RBI’s framework, ensuring standardisation and financial discipline.
Compliance Requirements:The operations and procedures of TReDS platforms must comply with all applicable legal and regulatory provisions issued and updated by the RBI and other relevant authorities.
Participants’ Governance:The activities of MSMEs, corporates, PSUs, government departments, and financiers using TReDS are bound by the same legal standards that govern their respective financial dealings.
Transparency and Supervision: TReDS platforms must maintain transparency, provide fair access to all participants, and adhere to RBI’s oversight mechanisms for data security and transaction reporting.
Amendments and Updates: The framework allows periodic amendments by regulatory authorities to adapt to evolving business and technological needs.
How Does TReDS Work
The Trade Receivables Discounting System (TReDS) helps Micro, Small, and Medium Enterprises (MSMEs) get faster payments by converting their unpaid invoices into cash. It connects MSMEs, buyers, and financiers on one digital platform. Transactions can take place in two ways: Factoring and Reverse Factoring.
Factoring (Seller-Initiated Process)
In factoring, the MSME seller starts the transaction by uploading the invoice after delivering goods or services to the buyer.
- Invoice Upload: The MSME uploads the invoice or Bill of Exchange as proof of sale on the TReDS platform.
- Buyer Acceptance: The buyer reviews and confirms the invoice details. Once approved, it becomes a Factoring Unit (FU).
- Bidding by Financiers: Banks and NBFC-factors view the accepted invoice and offer bids at different discount rates.
- Selection of Bid: The MSME selects the most suitable bid to receive payment at the best rate.
- Funding and Settlement: The financier pays the MSME after deducting the discount. On the due date, the buyer pays the full invoice amount to the financier.
Reverse Factoring (Buyer-Initiated Process)
In reverse factoring, the buyer initiates the transaction to help suppliers get early payments.
- Invoice Upload: The buyer uploads or confirms supplier invoices on the platform.
- Financier Bidding: Financiers bid to provide funds based on the buyer’s credit profile.
- Payment to MSME: Once the bid is accepted, the financier releases funds to the MSME at a discounted value.
- Settlement: On the due date, the buyer pays the financier the full amount of the invoice.
Participants in the TReDS Ecosystem
The Trade Receivables Discounting System (TReDS) connects three participants who work together to ensure smooth and timely invoice financing:
Sellers (MSME Suppliers)
MSMEs supply goods or services to large organisations and use the TReDS platform to get early payments. After the buyer confirms the invoice, sellers receive funds from financiers without providing any collateral.Buyers (Corporates, PSUs, Government Departments)
Large corporates, public sector undertakings, and government departments act as buyers. They verify and approve invoices uploaded by MSMEs and make payments to financiers on the due date.Financiers (Banks and NBFC-Factors)
Banks and NBFC-factors authorised by the RBI provide funds to MSMEs by discounting approved invoices. After deducting a small discount, they pay the seller the invoice value and collect the full payment from the buyer.
Instruments & Transaction Types on TReDS
The Trade Receivables Discounting System (TReDS) uses specific instruments and transaction types to simplify the invoice financing process, transparent, and standardised. These include:
Invoice vs Bill of Exchange
TReDS transactions can be based on an invoice or a Bill of Exchange (BoE). The MSME seller raises an invoice after supplying goods or services and acts as proof of sale. A Bill of Exchange is a written agreement where the buyer confirms that payment will be made on a specific date. In most cases, invoices are used, while Bills of Exchange are preferred when a formal payment acceptance is needed from the buyer.Factoring Unit (FU)
Once an invoice or Bill of Exchange is accepted, it is converted into a Factoring Unit (FU) on the TReDS platform. The FU contains key details such as invoice amount, due date, and buyer name. It serves as the tradable unit on which financiers bid to offer funding. This ensures all transactions are handled in a uniform and transparent manner.Factoring and Reverse Factoring
There are two types of transactions on TReDS: Factoring and Reverse Factoring. In factoring, the MSME seller uploads the invoice, and financiers bid to provide funds. The seller then chooses the most suitable offer and gets paid early. In reverse factoring, the buyer uploads or approves the invoice first, giving financiers more assurance about repayment.
Mandatory Onboarding & Thresholds
The Government of India has made it mandatory for large companies and public sector enterprises to register on the Trade Receivables Discounting System (TReDS).
Turnover Criteria & CPSEs
As per the MSME Ministry’s notification dated November 7, 2024, all companies registered under the Companies Act, 2013, are required to register on an RBI-approved TReDS platform. This mandate applies to entities with an annual turnover exceeding ₹250 crore. The rule also extends to Central Public Sector Enterprises (CPSEs) that procure goods or services from MSMEs. This new guideline replaces the earlier 2018 notification, which required registration only for companies with a turnover above ₹500 crore. The revised threshold brings more organisations under the TReDS framework and helps more MSMEs get timely payments.Compliance Timeline
All eligible companies and CPSEs must complete their TReDS registration by March 31, 2025. While registration is mandatory, using the platform for transactions remains optional.
| Category | Eligibility | Turnover Limit | Current Status |
|---|---|---|---|
| Private and Public Companies | Registered under the Companies Act, 2013 | Above ₹250 crore | Registration is mandatory; most entities are in compliance |
| Central Public Sector Enterprises (CPSEs) | Procuring from MSMEs | Any turnover | Registration mandatory; ongoing implementation |
Benefits of TReDS for MSMEs
The Trade Receivables Discounting System (TReDS) offers several advantages to Micro, Small, and Medium Enterprises (MSMEs). Below are the key benefits of TReDS for MSMEs:
- Faster Access to Payments: MSMEs can get quick payments for their invoices once accepted by buyers. This helps them maintain steady cash flow and reduces dependence on delayed receivables.
- Collateral-Free Financing: TReDS does not require MSMEs to provide any collateral. Financing is based on the buyer’s credit profile, making it easier for small businesses to access working capital.
- Better Financing Rates: Multiple banks and NBFCs bid to finance the same invoice, allowing MSMEs to get competitive discount rates and lower borrowing costs.
- Paperless and Simple Process: The entire process occurs online, from invoice upload to payment. This reduces paperwork, saves time, and ensures a smooth experience for MSMEs.
- Improved Cash Flow Management: By converting pending invoices into immediate cash, MSMEs can manage expenses, pay suppliers, and meet production needs without financial strain.
- Reduced Risk of Payment Delays: The financier pays the MSME directly once the buyer accepts the invoice. This minimises the risk of late payments and improves financial stability.
- Enhanced Business Credibility: Regular and timely payments through TReDS help MSMEs build stronger relationships with buyers and financiers, improving their business reputation.
- Transparency and Security: All transactions on TReDS are tracked digitally under RBI supervision. This ensures fair dealing, data security, and trust among all participants.
- Integration with Existing Systems: Most TReDS platforms integrate easily with business accounting and ERP systems, making it convenient for MSMEs to upload invoices and track payments.
- Government and RBI Support: Since TReDS operates under RBI regulation and government policy, MSMEs benefit from a safe, reliable, and officially recognised system for invoice financing.
Eligibility Criteria for TReDS Participation
TReDS allows only verified and eligible participants to ensure safe and transparent transactions. The platform is open to MSME sellers, large corporate or government buyers, and RBI-approved financiers. Each category must meet specific criteria set by the RBI to participate in TReDS. Below is the eligibility table outlining the requirements for each participant type:
| Participant Type | Eligibility Criteria | Key Documents Required |
|---|---|---|
| MSME Sellers (Suppliers) | Must be registered as a Micro, Small, or Medium Enterprise under the Udyam Registration framework. Should have a valid GST registration and an active bank account. | Udyam Certificate, PAN, GST Certificate, Bank Details |
| Buyers (Corporates, PSUs, Government Departments) | Must be a corporate entity, PSU, or government department that procures goods or services from MSMEs. Should be registered under the Companies Act, 2013 or the relevant authority. | PAN, GST Certificate, Registration/Establishment Proof, Authorisation Letter |
| Financiers (Banks/NBFC-Factors) | Must be a Scheduled Commercial Bank, NBFC-Factor, or other financial institution authorised by the RBI to operate on TReDS. | RBI Licence/Approval Copy, Company Incorporation Documents, KYC Documents |
How to Register on TReDS
The C2treds registration process is simple and guided for all participants, whether you are a buyer, supplier, or financier. To get started, fill out the registration form on the website and select your participant type. After submitting the form, the concerned team will reach out to guide you through the onboarding process.
Below are the high-level steps involved:
- Fill Basic Business Information: Enter your company details and select your role on the platform, whether as a buyer, supplier, or financier.
- Submit Required Documents: Provide the necessary documents for verification, such as company registration proofs, PAN, GST certificates, or MSME registration as applicable.
- Complete KYC Verification: Submit identification and bank details for both the entity and authorised signatories to complete the KYC process.
- Bank and Statutory Details: Share bank account and statutory information needed for settlement, compliance, and future transactions on the platform.
Note: Each of these steps is guided by the C2treds team, ensuring that participants are onboarded smoothly and securely.
Fees & Charges
TReDS platforms charge nominal fees to cover the cost of registration, platform maintenance, and transaction processing. These charges vary slightly across platforms but remain affordable to encourage participation from MSMEs, buyers, and financiers. Below is an overview of the typical fees and charges applicable to TReDS:
Registration Fee
A one-time registration fee is charged at the time of onboarding. This covers the verification, documentation, and account setup process for new participants. The amount may vary depending on the participant type (seller, buyer, or financier) and the platform’s pricing policy.Annual Fee
An annual maintenance fee is charged to keep the participant’s account active. This fee supports platform services, updates, and ongoing technical support. MSMEs often enjoy lower or subsidised annual fees compared to large corporates and financiers.Transaction Charges
Each transaction carried out on the platform attracts a small charge based on the invoice value or discount amount. These charges are usually paid by the seller or buyer who initiates the transaction. The rates differ slightly across platforms but are designed to remain minimal to make financing affordable for MSMEs.
TReDS vs Traditional Invoice Financing
Below is a simple comparison between TReDS and traditional invoice financing:
| Aspect | TReDS | Traditional Invoice Financing |
|---|---|---|
| Regulatory Framework | Operates under RBI regulation through the Payment and Settlement Systems Act, 2007 | Works through individual lender arrangements with limited regulatory oversight |
| Mode of Operation | Fully digital platform enabling online invoice upload, verification, bidding, and settlement | Usually manual or semi-digital, involving paperwork and physical verification |
| Financing Basis | Based on the buyer’s credit rating and invoice authenticity | Based on MSME’s own credit profile and collateral |
| Financiers Involved | Multiple banks and NBFC factors bid to finance invoices, ensuring competition | Typically involves a single bank or financier |
| Transparency | High transparency due to standardised digital process and RBI supervision | Limited transparency; rates and terms vary across lenders |
| Speed of Funding | Faster, funds are released within 24–48 hrs after buyer acceptance | Slower due to manual verification and approval |
| Collateral Requirement | No collateral required; financing depends on the buyer’s payment assurance | Often requires security or collateral from the MSME |
| Cost of Financing | Lower due to competitive bidding among financiers | Higher, as the MSME negotiates directly with one lender |
| Impact on Balance Sheet | Treated as off-balance-sheet financing; does not increase debt | Treated as a loan, impacting the MSME’s borrowing capacity |
| Accessibility | Open to all registered MSMEs, corporates, and government entities on one platform. | Limited to existing relationships with specific lenders |
Challenges and Limitations of TReDS
TReDS has improved access to finance for MSMEs, but it still faces several challenges that limit its reach and overall impact. According to a NITI Aayog (2021) report, the Trade Receivables Discounting System (TReDS) still serves only a small portion of India’s MSME and corporate sectors. Below are the key challenges and limitations affecting the platform’s growth and adoption:
- Limited Coverage of MSMEs and Corporates: Despite its benefits, TReDS caters to only a small portion of the MSME and corporate sector. Many small enterprises are still unaware of the platform or lack the digital skills needed to participate effectively.
- Restrictive Onboarding Regulations: Currently, only MSME suppliers are allowed on the platform. Non-MSME vendors cannot participate, which creates difficulties for large corporations that deal with both MSME and non-MSME suppliers. This results in fragmented payment systems.
- Inactive Participants: A large number of registered MSMEs on TReDS remain inactive. This happens due to limited trading activity, discontinued relationships with buyers, or alternative payment arrangements that offer faster settlements.
- Low Profitability for Small Financiers: The TReDS bidding system largely benefits MSMEs and major banks. However, small financiers often face reduced profitability due to higher funding costs. This limits their participation and, in turn, lowers the overall liquidity on the platform.
- Exclusion of Export Factoring: TReDS currently supports only domestic trade receivables. Export-oriented MSMEs cannot use the platform to discount international invoices, leaving a major gap in global trade financing.
- Complex Verification Process: The current verification and onboarding procedures can be time-consuming. Integrating TReDS with government databases like MCA filings or the Udyam portal could simplify this process and improve participation.
- Low Awareness and Digital Readiness: Many MSMEs, especially in smaller towns, lack awareness of how TReDS works or how it can benefit them. There is also a need for greater digital capability and training among small businesses to encourage adoption.
- Lack of Integration with GST Network (GSTN): Presently, TReDS is not directly integrated with the Goods and Services Tax Network (GSTN). Such integration could improve real-time invoice verification, reduce fraud, and speed up financing for MSMEs.
Government Initiatives Supporting TReDS
The Government of India has taken some measures to enhance and scale up the TReDS to guarantee quick payouts to MSMEs. The key government programs in support of TReDS are as below:
- Mandatory Registration for Large Companies and CPSEs: The Ministry of MSME has made it mandatory for all companies with an annual turnover of more than 250 crore, as well as Central Public Sector Enterprises (CPSEs), to register on TReDS. This guarantees that the presence of large buyers in the ecosystem is achieved, and MSMEs are paid promptly.
- Onboarding of CPSEs: The Department of Public Enterprises (DPE) instructed all CPSEs to onboard TReDS platforms. As of 2024, over 196 CPSEs have completed registration, strengthening the buyer base and encouraging wider MSME participation.
- Integration with GST Network (GSTN): The government is in the process of verifying the integration between TReDS and the Goods and Services Tax Network (GSTN). Integration with the GST network will make the process of discounting easier, more accurate, and payment settlements quicker for MSMEs.
- Simplified Verification through Data Linking: With simplified verification through data linking, TReDS is now getting connected with other government databases. These include the MCA filings and the Udyam Registration Portal.
- Awareness and Capacity-Building Programs: MSME Ministry and industry associations conduct awareness creation, training and webinar programs in order to increase awareness. Through these programs, MSMEs are educated about the operation of the TReds and the benefits, such as managing the cash flows.
- Monitoring of TReDS Adoption: The government regularly tracks onboarding progress and transaction volumes through official dashboards. As per MSME data, more than 1,932 large companies and hundreds of CPSEs are now registered, showing steady growth in platform participation.
Future of TReDS in India
The Trade Receivables Discounting System (TReDS) is poised for significant growth as India deepens its digital financing ecosystem for MSMEs. With strong government and RBI support, TReDS is steadily emerging as a trusted channel for faster, transparent, and paperless invoice financing. Among the leading platforms, C2treds has shown remarkable progress, processing invoices worth over ₹3.2 lakh crore and connecting more than 89,000 MSME suppliers, nearly 5,000 buyers, and 66 financiers. Integrations with GSTN, Udyam Registration, and MCA databases are making verification and settlement faster and more seamless. Over time, TReDS is expected to become a key driver of liquidity, transparency, and growth within India’s MSME sector.