Frequently Asked Questions (FAQs) – from users interested in the world of TReDs to MSMEs interested in becoming a part of the world of invoice discounting through RXIL. Questions and answers related to TReDS,
TReDS registration, factoring, RXIL workings, among others.
1. What is TReDS?
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.
2. Who can participate on the TReDS platform of RXIL?
The following categories of participants can join the TReDS platform.
|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|
3. Will TReDS Platform support invoices for manufacturing sector only?
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.
4. What is the eligibility criteria for MSMEs to join the TReDS platform as a Seller?
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|
5. What is Factoring?
In case of Factoring, the Seller initiates the process of financing of trade receivables and generally bears in the interest or financing cost.
6. What is Reverse Factoring?
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.
7. Complaints & Grievance
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:
- Any complaint/ grievance/ disagreement/ dispute between the seller and the buyer – including in relation to any goods or services provided by the Seller to the Buyer
- Non-performance of any respective obligations of the seller or the buyer in relation to any transactions undertaken on the TReDS platform
- Non-performance of any respective obligations between the buyer and the financier
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?
Ans: 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: email@example.com
3. What are the mandatory details required for lodging investor’s complaint/ grievance?
- name of the complainant
- area of complaint
- specific instances of the cause of grievance / complaint
4. What is the procedure for filing the complaint / grievance?
- Party registered on RXIL platform having complaint/ grievance shall submit the grievance to RXIL Nodal Officer through email/ written letter.
- Auto response email quoting unique ticket number will be sent to the complainant. In case of written complaint, acknowledgement will be sent within five (5) working days of receipt by quoting unique ticket number.
- Action will be initiated immediately to have the grievance resolved within a maximum period of three weeks.
- In case of dissatisfaction, the complainant can escalate the grievance to Chief Operating Officer (COO) of the Company for further action / resolution. The escalated complaints will be redressed by the COO within a period of five (5) working days.
8. How do I register as a participant on the TReDS Platform?
- Creation of new User ID (For online filling and submitting the application)
- Online submission of Application and requisite documents
- Execution of Master Agreement
- Submission of printed signed application and self-attested / attested documents to RXIL.
- Verification of information provided in the application and documents by RXIL and confirmation to the Participant.
- Payment of Registration Fee by the Participant
- After satisfactory completion of the process RXIL to initiate activation process for the Participant to use the TReDS platform
9. How do I create a new User Id for registration on the TReDS Platform?
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:
- Go to https://www.treds.in/
- Select New User Registration
- Enter the following details
- Entity Name
- Entity Constitution
- Buyer / Seller
- Mobile Number
- Email Id
- PAN Number
- Once the details are submitted, the user is activated to fill the online application.
10. How long is my new user id valid?
Currently, the new user id is valid for a period of 30 days.
11. What is the RXIL criterion for registration of participants on the TReDS platform?
Participants must have engaged in business for at least 1 year (Except Financiers).
12. What all documents are required to be submitted to RXIL for on-boarding/registration?
The following documents duly signed by the authorized persons need to be submitted to RXIL for on-boarding:
- Application Form
- Master Agreement
- Bank Confirmation Letter
- Mandate form for debiting the designated bank account (applicable for Financiers and Buyers)
- KYC documents of the applicant entity, promoters, administrator (Admin User), authorized signatories etc.
- Other applicable documents (please visit www.rxil.in for more details regarding acceptable documents)
13. Can I check the status of my registration?
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.
14. Are there any fees for registration on the TReDS Platform?
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.
15. What is an instrument on TReDS platform?
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.
16. What all supporting documents I need to upload for creating an instrument?
Only tax invoice is mandatory. Other supporting documents like Good Receipt Note, Lorry Receipt / Freight Delivery Document or Credit/Debit Note are optional.
17. Does the invoice need to be accepted by the counterparty?
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.
18. Is Maker Checker functionality available for creation of instrument?
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.
19. What happens if my Buyer is not registered on the platform?
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.
20. What is Buyer – Seller Link?
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.
21. Who bears the interest cost?
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.
22. What is a Cap Rate and who can define it?
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.
23. What is Factoring Unit?
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.
24. What type of invoices can be uploaded on the TReDS platform for factoring?
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.
25. Who can bid on the Factoring Units?
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.
26. Who can see the bid rates offered by the Financiers?
Seller or Buyer whoever is having right to accept the bid, can see the bids offered by the Financiers.
27. What is the Market Timing of Auction of the Factoring Units?
The Auction Market where the Financiers can enter bids shall be open from 9:00 AM to 9:00 PM every day.
28. What is the cut-off time to accept the bid?
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.
29. How much time it takes to get a Factoring Unit factored?
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.
30. What happens if no bids are received from Financiers for invoices during auction?
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.
31. Is financing of factoring unit guaranteed on 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).
32. Can a Factoring Unit be withdrawn from the TReDS portal?
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.
33. What are the associated costs for factoring?
There are two types of the costs involved in the factoring of each factoring unit.
- Interest cost payable by the Seller or Buyer, as the case may be, to the Financier
- Transaction Charge (incl applicable Service Tax etc) to be paid by charge bearer to the RXIL for factoring
34. Who bears the interest cost & transaction charges?
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.
35. Whether any security is required to be given to RXIL for factoring?
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).
36. What is the payment mechanism for factored invoices?
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.
37. What shall be the due date for Buyer to repay the obligation to the Financier?
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.
38. How will the Buyer repay the obligation?
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.
39. What happens if the payment from Financier to MSME seller fails?
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.
40. What happens if the repayment from Buyer to Financier fails?
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.