How TReDS Works for MSMEs: Process, Benefits & Eligibility

TReDS platform follows the steps below, involving the seller, buyer and financier:

Step 1: The seller uploads the invoice on the platform.
Step 2: The buyer accepts the invoice.
Step 3: Financiers bid on the invoice.
Step 4: The seller accepts the best bid.
Step 5: The financier disburses the funds to the seller after deducting applicable charges.
Step 6: The seller receives the funds.
Step 7: The buyer pays the financier on the due date.
Step 8: The financier receives the outstanding amount.
Let’s take an example to understand:

• ABC (the seller) raises an invoice of Rs. 10 lakh to XYZ (the buyer) for the goods supplied.
• The invoice is uploaded on the TReDS platform and converted into a Factoring Unit (FU), which is the standard nomenclature used on TReDS for an invoice or bill.
• XYZ accepts the FU and confirms payment of the amount on a fixed date.
• Financiers submit offers to fund the invoice.
• The seller accepts the preferred offer.
• The financier disburses the funds to the seller's account.
• The buyer pays the financier on the agreed due date.

The above-mentioned steps explain the factoring method used on TReDS. Another method available on TReDS is reverse factoring.

Factoring vs Reverse Factoring on TReDS

What is Factoring on TReDS?

In factoring, the seller or MSME uploads the invoice on TReDS and creates the Factoring Unit (FU). The buyer accepts it, following which financiers bid to finance the receivable.

Factoring Unit created by the seller
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Buyer accepts the Factoring Unit
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Financiers bid for the invoice
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MSME accepts the bid
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The financier disburses the funds to the MSME
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The buyer pays the financier on the agreed due date

What is Reverse Factoring on TReDS?

In reverse factoring, the buyer initiates the transaction by creating the Factoring Unit (FU) on behalf of the seller. The seller accepts it, after which financiers bid to finance the receivable.

Factoring Unit created by the buyer on behalf of the seller
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The seller accepts the invoice
↓
Financiers bid for the invoice
↓
The seller accepts the bid
↓
The financier disburses the funds to the seller's account
↓
The buyer pays the financier on the agreed due date

Who Can Participate in TReDS?

The following entities can participate on the TReDS platform:

• Sellers: MSMEs, as per the applicable MSME definition
• Institutional Buyers: Corporates, government departments, PSUs and other eligible entities
• Financiers: Banks, NBFCs and financial institutions as permitted by RBI
• Insurance companies
• Credit Guarantee Fund Trusts notified by the Government of India

TReDS Eligibility for MSMEs

• MSMEs classified as per the applicable MSME definition may be eligible to use the TReDS platform.
• MSMEs may be required to have a valid Udyam Registration Certificate.
• Additional eligibility requirements may vary depending on the TReDS platform and applicable regulations.

Documents Required for TReDS Registration

For Individuals

Documents may be required to verify the following:

• Legal name
• Date of birth
• Address
• PAN details
• Passport details, where applicable

For Corporates

• Company or firm details, including name, address, date of incorporation and commencement of business
• Registration certificate or details issued by the ROC, RBI or another government authority
• PAN details
• Promoters, partners and key managerial personnel details
• Bank account and depository account details, where applicable
• Balance sheets for the previous two financial years, where required
• Latest shareholding pattern
• Memorandum and Articles of Association (MoA and AoA) for companies or body corporates
• Partnership deed for partnership firms
• Board resolution approving participation and authorising relevant persons, where applicable
• Photographs and identification details of authorised persons, partners, directors or promoters, as applicable
• Broker and stock exchange details, where applicable

Key Benefits of TReDS for MSMEs

• Improved cash flow: MSMEs can receive funds against eligible receivables before the buyer's payment due date.
• Financing without collateral: TReDS financing is generally based on trade receivables and may not require collateral from the MSME.
• Reduced dependence on traditional borrowing: MSMEs can use receivable financing to meet working capital requirements.
• Multiple financiers: Competitive bidding by multiple financiers may help MSMEs access better financing terms.

Benefits of TReDS for Buyers

• Centralised platform: Helps manage vendor payments through a digital platform.
• Faster processing: Can streamline invoice processing and financing transactions.
• Competitive bidding: Multiple financiers can bid on eligible invoices.
• Flexible payment terms: Buyers can make payment to the financier on the agreed invoice due date.

Benefits of TReDS for Financiers

• Priority Sector Lending benefits: Eligible financing may qualify for PSL benefits as per applicable RBI guidelines.
• Business opportunities: Provides access to MSME receivables and institutional buyers.
• Easy reconciliation: Digital transaction records can simplify reconciliation and reporting.
• Risk assessment: Financing decisions can be based on the underlying receivable and buyer's credit profile.

TReDS Registration Process for MSMEs

1. Select an RBI-authorised TReDS platform.
2. Create an account by registering online as an MSME.
3. Provide the required business and KYC details, including PAN, GSTIN and other applicable information.
4. Add bank account details for receiving funds.
5. Complete verification, agreements and other required formalities.
6. Add authorised users and establish buyer-seller relationships, where required.
7. Once the registration is approved, start creating or uploading eligible invoices on the platform.

TReDS Charges

The discount rate or financing cost on TReDS is generally determined through bids submitted by participating financiers. The final cost may depend on factors such as the buyer's credit profile, invoice tenure and prevailing market conditions.

Registration fees, transaction charges and other applicable charges may vary across TReDS platforms and financiers. MSMEs should check the applicable fee structure before registering or accepting a financing bid.

Highlights from Union Budget 2026

• Measures relating to the use and expansion of TReDS for MSME receivables.
• Proposals aimed at improving credit access and reducing financing risks for MSMEs.
• Initiatives to improve integration between digital government and financing platforms.
• Measures intended to improve liquidity in MSME receivables.

What Happens When a Buyer Defaults?

Transactions on TReDS are generally structured on a without-recourse basis to the MSME seller. This means that, subject to the applicable transaction terms and platform rules, the MSME seller is generally not required to repay the financier if the buyer defaults.

If the buyer fails to make payment on the due date, the default is handled according to the applicable TReDS platform rules, agreements and legal framework. The financier may initiate appropriate recovery action against the buyer.

TReDS Settlement Process

The settlement process on TReDS generally involves the following steps:

• After the seller accepts the financing bid, the financier transfers the agreed funds to the seller through the applicable settlement mechanism, after deduction of applicable charges.
• The seller receives the discounted invoice amount in the registered bank account.
• On the invoice due date, the buyer makes payment as per the agreed settlement process.
• The invoice amount is transferred to the financier through the applicable TReDS settlement mechanism.
• Mandates and other payment arrangements may be required from participants as per the platform's rules.