TReDS refers to Trade Receivable Discounting System. TReDS is being setup as per the RBI guideline issued on December 3, 2014. It is an online electronic platform and an institutional mechanism for financing / factoring of trade receivables of MSME Sellers against Corporate Buyers, Govt. Departments and PSUs.
RXIL, a joint venture between National Stock Exchange of India Limited (NSE) and Small Industries Development Bank of India (SIDBI) has been authorised by Reserve Bank of India (RBI) to operate the TReDS platform. The main objective of the TReDS platform is to address the financing needs of MSMEs as well as the delayed payments issue.
The following categories of participants can join the TReDS platform.
| Participants | Eligibility |
|---|---|
| Sellers | MSME entities as per the definition of the Micro, Small and Medium Enterprises Development Act, 2006 (“MSMED Act”) |
| Buyers | Corporates including companies and other buyers including Government Departments and Public Sector Undertakings and such other entities as may be permitted by the Reserve Bank of India (RBI) |
| Financiers | Banks, NBFC Factors, Financial Institutions and such other institutions as may be permitted by RBI from time to time |
The TReDS platform will support not only invoices raised by MSMEs in the manufacturing sector but also for the service sector as per the MSMED Act, 2006.
The eligibility criteria for MSME enterprises to join the TReDS platform as Sellers are given below:
Manufacturing Enterprises and Enterprises rendering Services
| Investment in Plant and Machinery or Equipment | |
|---|---|
| Micro | Not more than Rs.1 crore and Annual Turnover ; not more than Rs. 5 crore |
| Small | Not more than Rs.10 crore and Annual Turnover ; not more than Rs. 50 crore |
| Medium | Not more than Rs.50 crore and Annual Turnover ; not more than Rs. 250 crore |
In case of Factoring, the Seller initiates the process of financing of trade receivables and generally bears in the interest or financing cost.
In case of Reverse Factoring, the Buyer initiates the process of financing of trade receivables of Sellers. The Buyer may or may not bear the interest or financing cost as may be agreed between the Buyer and Seller.
1. Which complaints/ grievances will be covered under this Mechanism?
Ans: Only complaints/ grievances pertaining to RXIL TReDS platform will be covered under this Mechanism and the following will not be part of the Mechanism:
All such disputes or proceedings should be resolved outside the TReDS platform without any reference or recourse to RXIL.
2. What are the contact details for addressing complaints/ grievances relating to RXIL TReDS platform?
The grievances can be sent to:
Nodal Officer, Receivables Exchange of India Limited
I-Think Techno Campus, 701- 702, 7th floor, Supremus,Kanjurmarg East,
Mumbai, Maharashtra 400042
Tel No. 022 6903 3000
Email id: grievance@rxil.in
3. What are the mandatory details required for lodging investor’s complaint/ grievance?
4. What is the procedure for filing the complaint / grievance?
Any person can create a User Id for registration to participate on the TReDS platform. To create a user id, user needs to follow the steps given below:
Currently, the new user id is valid for a period of 30 days.
Participants must have engaged in business for at least 1 year (Except Financiers).
The following documents duly signed by the authorized persons need to be submitted to RXIL for on-boarding:
Yes. The status can be tracked by visiting the status tracker page of the online registration module. Further Email Alerts / Notifications are also sent at various stages of registration.
All the participants intending to register on the TReDS platform will need to pay one-time non-refundable Registration Fee at the time of registration. In addition to the Registration Fee, the participants will have to pay an Annual Fee with service tax by 30th day of April every year. RXIL reserves right to withhold transaction rights of entities which have not remitted fees.
Instrument is nothing but invoice details and scanned invoice uploaded either by the Seller or Buyer reflecting the underlying trade receivables of MSME Sellers. Only the Tax Invoice is accepted as a valid invoice.
Only tax invoice is mandatory. Other supporting documents like Good Receipt Note, Lorry Receipt / Freight Delivery Document or Credit/Debit Note are optional.
As per RBI TReDS guidelines, it is mandatory for the counterparty to provide acceptance of the invoice on the TReDS platform. In case the Seller uploads the invoice it needs to be accepted by the Buyer; while in case of Buyer uploading the invoice, the Seller must accept the invoice for factoring or financing on the TReDS platform.
Yes. TReDS platform provides for maker checker functionality for Buyers and Sellers for creation of instruments. The maker creating the instrument cannot be a checker and vice versa.
Both Buyer and the Seller must be registered on the TReDS platform for financing / factoring of trade receivables of the MSME Seller. As mentioned earlier, the counterparty needs to provide acceptance for the invoice as per the RBI TReDS guidelines.
If a Buyer is not registered on the TReDS platform, the Seller may reach out to the Buyer to get registered on the TReDS platform or it can pass on the contact details of the Buyer to RXIL team. RXIL team will then reach out to the Buyer to get it registered on the TReDS platform.
Buyer Seller link allows the relationship to be established between the Buyer and the Seller on TReDS platform. This relationship drives the entire processing of transactions on the TReDS platform including counterparty approval.
TReDS platform provides the flexibility for either the Seller or the Buyer to bear the interest cost. The interest obligation for financing of factoring units is accordingly calculated by the TReDS platform.
Cap Rate is the maximum rate acceptable to the Seller or Buyer (whoever is the interest cost bearer) for financing of the trade receivables of the MSME Seller on the platform.
Both Seller and the Buyer can define the Cap Rate for financing / factoring of trade receivables on the TReDS platform. If the Seller is the cost bearer then the Cap Rate defined by the Seller then the Seller’s Cap Rate will be taken into account. If the Buyer is the cost bearer then Buyer’s Cap Rate will be taken into account.
Buyer can define only one cap rate; while the Seller can define Cap Rate for each Buyer.
On acceptance of the instrument (comprising of invoice details and scanned invoice) by the counterparty, the instrument becomes a Factoring Unit. Only accepted instruments enter into an auction.
Only Tax invoice for Manufacturing and Service activity with minimum balance tenor of 15 days, which have not been financed from any other source and not encumbered, can be uploaded on the TReDS platform.
Banks, NBFC Factors and other entities permitted by RBI and registered on TReDS portal of RXIL as Financiers can participate in the auction. Each financier needs to define a credit limit on the Buyer associated with the factoring unit to enter a bid in the auction.
Seller or Buyer whoever is having right to accept the bid, can see the bids offered by the Financiers.
The Auction Market where the Financiers can enter bids shall be open from 9:00 AM to 9:00 PM every day.
The participant having the right to accept the bid can accept the bids any time during the day between 9am to 9pm on working days. These bids will be settled on T+1 (Bid acceptance date + 1 working day) Settlement.
The factoring of the factoring unit shall depend on time consumed in receipt of bid from the Financiers during auction period and it’s acceptance by the seller/buyer. On bid acceptance, the system shall ensure that the factoring unit of Micro & Small Enterprises to be factored within 45 days from the Goods Acceptance Date. The payment shall be settled on T+1 based on the acceptance of bid. The turnaround time for financing of factoring unit of MSME’s shall depend on offering of bids by the financiers, acceptance of bids by the cost bearer and settlement of obligation by the financier.
If no bids are received from Financiers or the invoice remains unfinanced then the invoices will be settled between the Buyer and the Seller outside of the TReDS platform.
No. The financing of factoring units is not guaranteed on the TReDS platform. The same shall depend on offering of bids by the Financiers, acceptance of bids by the cost bearer and settlement of obligation by the participants (Financiers for Leg 1 and Buyers for Leg 2).
Yes. A Factoring Unit may be withdrawn from TReDS portal till the time a bid is not accepted by the cost bearer. Once the bid is accepted by the cost bearer, the Factoring Unit cannot be withdrawn.
There are two types of the costs involved in the factoring of each factoring unit.
There is a provision on the TReDS Platform to define who is going bear the interest cost. In case of Leg 3 where the invoice remains unfinanced then in that case the Buyer has the option to make the payment directly to the Seller through the TReDS platform. In such cases the transaction charge will be borne by the Buyer.
No security is required to be given by Seller or Buyer to RXIL for the purpose of factoring of trade receivables on the TReDS Platform. However, any financing transaction on the TReDS portal of RXIL will tantamount to an assignment of receivables in favour of the Financier. The same is also required to be registered with Central Registry of Securitisation Asset Reconstruction and Security Interest (CERSAI).
Once the bid is accepted by the seller or buyer whoever is the cost bearer, the designated bank account of the Financier will be auto-debited based on the mandated provided by them on T+1 (Bid acceptance date = 1 working day) and RXIL to strive to make the payment to the designated account of the Seller on T+1.
Similarly, on the final due date, the designated bank account of the Buyer will be auto-debited and the payment will be made to the Financier in its designated bank account on the same day or next day.
The Buyer shall repay the obligation to the financier on the due date of the factored invoice which shall be goods acceptance date plus credit period. If the due date falls on a holiday, the obligations need to be settled on the preceding working day.
The Buyer shall provide debit mandate to RXIL at the time of registration.The designated bank account of the Buyer on TReDS platform will be auto-debited for the purpose of crediting the obligations to the designated bank account of the Financier.
If the payment from Financier to Seller fails, the factoring unit will be marked as Failed on the TReDS portal of RXIL. In such circumstance, the Buyer needs to pay to the Seller directly on the due date outside the system.
There is also a provision for the Seller or the Buyer to re-initiate auction in such cases.
Non-payment by the Buyer on the due date to the Financier is tantamount to a default by the Buyer. The transaction is marked as Failed in the TReDS platform. The Buyer is required to settle directly with the Financier.