Trade Receivables Discounting System (TReDS)

Last Updated on February 10, 2026

Micro, Small, and Medium Enterprises (MSMEs) play an important role in India’s economy, contributing significantly to employment creation, export growth, and industrialisation. Nevertheless, one of the crucial problems that MSMEs in the country are facing is the prolonged payment period for the supply of items or the provision of services. In other words, trade receivables, which are amounts due from customers, are delaying payment for the supplied items. Such an increase in trade receivables is affecting the operations of the businesses, especially the micro, small, and medium ones, since they are likely to maintain fewer cash balances. Improving payment systems and trade receivables financing access have been recognised as essential factors in supporting micro, small, and medium businesses, depending on the economy under consideration.

What is TReDS?

The Trade Receivables Discounting System (TReDS) is an electronic system developed by the Reserve Bank of India (RBI) that seeks to help Micro, Small, and Medium Enterprises (MSMEs) make timely payments for their trade receivables. MSMEs can upload the invoices they send to corporate or government entities, which can be financed with the help of a bid-based system with the involvement of banks and Non-Banking Financial Companies (NBFCs).

Once the invoice is accepted by the buyer on the platform, various financiers compete to give the invoice a discount at a favourable rate. The MSME receives the money immediately after the charges of the discount have been deducted, while the buyer has the responsibility to make a direct payment to the lender on the due date.

TReDS mainly works by a reverse factoring system, which means that the fund supply is based on the creditworthiness of the buyers. Accordingly, it increases liquidity, removes working capital challenges, and facilitates timely payments to MSMEs.

Eligibility for TReDS

The eligibility for the Trade Receivables Discounting System applies to MSMEs, corporate buyers, and financiers, usually with the goal of securing trade receivables finance.

1. MSME Sellers

• Sellers need to register themselves as Micro, Small, or Medium Enterprises through Udyam Registration.
• Sellers need to have a PAN and a GST registration.
• Sellers need to provide their services or products to corporate or government bodies.

2. Corporate Buyers

• Eligible corporate buyers include companies, PSUs, and government departments.
• Eligibility criteria include the need for a valid PAN number and GST registration.
• The corporate buyers need to register with a TReDS platform approved by

3. Financiers

• Scheduled Commercial Banks.
• NBFCs and Other Financial Institutions Sanctioned by RBI.
• Participants need to be registered on the TReDS platform.

4. Invoice Conditions

• Invoices must be legitimate trade debtors.
• The buyer is required to electronically accept the invoice before the discount takes place.

Documentation Required for TReDS

For MSMEs, buyers, and lenders who wish to participate in the TReDS, they need to register and meet the due documentation norms set for the process by the RBI-approved platforms.

1. KYC documents

• The entity’s Permanent Account Number (PAN) Card
• Aadhaar card of the authorised signatory
• Proof of identity and address for directors and partners

2. Business Registration Documents

• Certificate of Incorporation for companies
• Partnership Deed (for partnership firms)
• Limited Liability Partnership (LLP) Agreement (for Limited Liability Partnerships)
• Udyam Registration Certificate for MSME

3. GST Registration Certificate

• Goods and Services Tax Identification Number (GSTIN)
• A copy of the GST registration certificate

4. Bank Account Details

• Canceled cheque
• Recent bank account statement
• Bank Mandate Form

5. Financial documents

• Most recent audited financial statements.
• Income Tax Returns (ITR).
• Board resolution or letter of authorisation for using the platform.

6. Trade Documents

• Copies of invoices issued.
• Purchase and work orders.
• Confirmed acceptance of the buyer through digital approval on the platform.

How Does TReDS Work? (Process Of TReDS)

Trade Receivables Discounting System (TReDS), which is an electronic platform created by RBI, has the objective of promoting the financing of trade receivables from corporate buyers of MSMEs by various financiers. By providing early payment options to the MSMEs, the TReDS is helping to increase the financial stability of the MSMEs, which in turn is facilitating the commercial transaction system in the country. The working of the Trade Receivables Discounting System can be stated as follows:

1. Registration on the TReDS Platform

• The categories that need registration with the TReDS platform include MSME Sellers, Corporate Buyers, and Financiers like Banks/NBFCs. There are RBI-appointed TReDS platforms, and these are RXIL, Invoicemart,
• Participants have to provide KYC documents and registration information.

2. MSME raises the invoice

• Goods or services are supplied by the MSME to a buyer, in most cases, an entity corporate in nature or a PSU.
• The MSME will send an invoice, stating the terms of the payment that will be mutually agreed upon, whether it be in 60 or 90 days.
• Instead, the MSME uploads the invoices onto the TReDS platform before the due date.

3. The buyer acknowledges the invoice

• Corporate buyers check and digitally approve the invoices on the platform.
• An acceptance indicates that the buyer will pay by a certain due date.
• Once accepted, invoices can then be deemed eligible for discounts.

4. Bid process by financiers

• Different investors, including banks and non-banking financial companies, evaluate the accepted invoice.
• They offer competitive interest rates to discount the invoice.
• The bidding process enhances transparency and creates better rates for MSMEs.

5. Optimal Bid Selection

• The MSME accepts the best bid, which will be the lowest discount rate.
• The selected financier agrees to make the advance available, deducting the discount charges.

6. Payment to MSMEs

• The financier sends the reduced amount to the bank account of the MSME.
• The MSME receives immediate payments, thereby saving the waiting time between the start and end of the credit period.
• This helps to improve working capital and cash flow.

7. The buyer pays on the due date

• The buyer makes payment to the financier on the invoice due date.
• The transactions are automatically settled through the platform.
• The MSME ceases to be responsible after the receivable has been assigned.

8. Legal Frameworks and Security

• The transaction complies with the Factoring Regulation Act, 2011, and RBI regulations.
• Our methodology is digital, transparent, and secure.
• The primary risk is not borne by the MSME but by the buyer once the invoice is accepted.

9. Reverse Factoring Feature

• TReDS mainly works on reverse factoring principles.
• Buyer’s creditworthiness affects the determination of the discount rate.
• A satisfactory credit rating for large corporations will ease the financial burden for MSMEs as they seek funding.

Advantages of TReDS

TReDS provides different facilities to both MSMEs and buyers. TReDS is a cost-effective, transparent, and secure system for financing MSMEs and enhances India’s financial scenario because it is highly beneficial to small businesses.

1. Improved cash flow for MSMEs

• MSMEs are paid immediately for approved invoices.
• Reduces waiting times by 30 to 90 days or more.
• Ensures effective working capital management.

2. Reduced Financing Costs

• There are many banks and NBFCs that compete for invoicing.
• Competitive bidding leads to lower discounting rates.
• Financing costs may also depend upon the credit profile of the buying party, not the MSME.

3. No Requirement for Collateral

• There is financing of trade receivables.
• Additional security and/or asset requirements of MSMEs are not needed.
• This is particularly suitable for small businesses with limited assets.

4. Clear and Digital Process

• Offers a comprehensive online platform.
• Transparent information about bids, rates, and transaction status.
• Minimises paperwork and manual interventions.

5. Decreased Credit Risk

• Acceptance of the invoice implies the payment obligation.
• The buyer’s creditworthiness is the primary risk factor.
• Provides financial security for MSMEs.

6. Accelerated Payment Cycle

• Swift approval and fund disbursement process.
• Eliminates delays related to traditional lending methodologies.
• Improves operational efficiency.

7. Enhanced Financial Discipline

• It motivates buyers to pay promptly.
• It promotes a structured and regulated payment system.
• Strengthens the credit culture in the market.

8. Access to the Formal Credit System

• Interlinks MSMEs with the formal banking system.
• Enhances financial stability and credibility.
• Increases future borrowing potential.

9. No Effect on Balance Sheet Borrowings

• Classified as receivable finance, as opposed to traditional loans.
• Does not elevate long-term debt obligations.

Frequently Asked Questions (FAQ)

1. What is TReDS?

TReDS is an online platform approved by the RBI for the discounting of trade receivables from MSMEs.

2. Who Can Use TReDS?

The participants include MSMEs, corporate buyers, government entities, banks, and NBFCs.

3. Is registration mandatory?

Nevertheless, all participants have to register themselves with a TReDS portal approved by RBI.

4. How does MSME receive payment?

Once the buyer agrees to the invoice, it shall be discounted by the financiers in order to offer early payment.

5. Is TReDS safe and regulated?

Yes, it is regulated by the RBI under the Factoring Regulation Act.

6. What are the benefits of using TReDS?

It increases the liquidity of MSMEs and provides for easy access to working capital.

Get Started With Kanakkupillai

KANAKKUPILLAI, your partner in compliance, is here to help you achieve better payments that ensure your cash flow is smooth and timely. We provide you with comprehensive assistance in the TReDS registration process, which includes documentation, compliance, and professional services, presenting you with the finest opportunities to take your business to the next level with the help of experts who are skilled in the said field and will ensure accuracy in the services they provide to you.

Do not let your receivables hold you back. Consult with KANAKKUPILLAI Experts quickly and confidently begin your journey to TReDS.