Implementing TReDS

The Trade Receivables electronic Discounting System (TReDS) is a good example of an initiative, whose establishment counts for little, unless supported by a long period of detailed focus on implementation. For the TREDS to work, at least the following are required

1. The large buyers, especially public sector ones, are registered on the TReDS.

2. The small SME suppliers can easily access TReDS – there should be limited or no access barriers.

3. The financing agencies are also registered on TReDS.

4. The financiers have the enabling incentives, especially by way of regulatory requirements, to lend actively on this platform.

5. The documentation requirements for factoring receivables are standardised and in place.

6. The process of transactions should be simple and hassle-free for all parties concerned. 

What are the policy levers available to encourage all the three sides – large buyers, small suppliers/traders, and financiers – to embrace this platform? How can the GSTN, for example, be leveraged to support this? How can this platform be better integrated with the core-banking network and other formal financial intermediation channels? How can the good performers, on both the large buyers and financiers’ sides, be incentivised? What can be done to lower the regulatory barriers for each of banks, DFIs, NBFCs, and fintech providers to factor receivables? How can the TReDS be integrated with GEMS, the government e-marketplace?

This too like eNAM and MUDRA 2.0, about which I blogged here and here respectively, demands implementation focus.

The ongoing Covid 19 pandemic may be a good opportunity to accelerate the implementation of TReDS. Businesses of all kinds are struggling with their working capitals locked up in receivables. An active role of TReDS in the circumstances can be a useful distress mitigating intervention. TK Arun has a good article here.

Update 1 (20.04.2020)

The government should mandate that any business or bank benefiting from Covid 19 stimulus should necessarily register on the factoring receivables platform, TReDS. Further, it should not be confined to mere registration, but active participation. This can be monitored in terms of their activity, transactions or volumes. Beneficiary banks would need to finance small businesses, and larger businesses would need to provide the support required for their payables being financed for their suppliers. Some incentive structure can be framed to expedite the growth of TReDS. 

Update 2 (28.05.2020)

Another suggestion,

The other change which needs to be made is to persuade the larger units to both accept and raise GST invoices on the Trades Receivables Discounting System (TReDS) platform so that payment to MSMEs are made in a time-bound manner. To prod the large units in this direction, the Securities and Exchange Board of India (Sebi) could issue guidelines that will incentivise these units to participate in the TReDS platform by factoring this in for higher credit ratings.