Reserve Bank of India-backed invoice discounting platform TReDS (Trade Receivables electronic Discounting System) has reported a jump in invoices financed by lenders in 2023.
The electronic platform facilitates easy access to credit for small businesses that are vendors to large corporations.
TReDS was launched by the RBI in 2018. While it was slow to scale initially, traction has started picking up, with both banks and non-banking lenders participating in the ecosystem.
On a monthly basis, invoices financed through TReDS nearly doubled from a year ago to about Rs 11,000 crore.
In 2023, total bills financed on the TReDS platform stood at Rs 1.16 lakh crore, up by 55% from around Rs 75,000 crore in 2022.
Wider adoption
Currently, there are three entities licensed by the RBI to offer this service: M1xchange, Invoicemart and Receivables Exchange of India.
While initially TReDS was mainly used by public sector enterprises, now private companies have started joining the ecosystem.
“The platform is seeing wider adoption by private corporations, as this brings down the cost of doing business by 5-7% of the financed amount for private corporations and their MSME suppliers,” said Sundeep Mohindru, chief executive officer of M1xchange. “As NBFCs are also allowed to participate, the penetration of the TReDS platform has expanded to all categories of corporations.”
Last year, the RBI allowed insurance players to participate in the space. As trade credit insurance is in process of going live, this will give more confidence to financiers and, in turn, expand the ecosystem, Mohindru said.
From catering to only the first level of suppliers to large corporations, TReDS allows financing of vendors to these suppliers too.
“The tier-2 MSME supplier of tier-1 MSME buyer is also getting financed on M1xchange. Around 75,000 to 80,000 MSMEs are using the platform,” said Mohindru.
Miles to go
Industry estimates suggest that the invoice discounting ecosystem in the country per month is around $120 billion in size, or about Rs 1 lakh crore. Compared with the entire market, the formal invoice discounting ecosystem – which includes private players, banks and TReDS – is still estimated to be around 50%. The remaining is being met by other sources of capital, executives said.
“The ecosystem is expanding since post-Covid, a lot of large companies are looking at multiple tiers of their supply chain, not just immediate buyers and sellers. This means they want to facilitate formal credit to the smallest of suppliers, as well as the buyer like a civil contractor at the point of sale,” said Ram Iyer, founder of Vayana, a Pune-based supply chain financing startup.
Vayana processes around Rs 11,000 crore worth of transactions every month, working along with its banking partners, extending it to more than 3,000 corporates and over 300,000 small enterprises across 28 sectors.
In such a scenario, companies cannot work with one bank, while on the other hand, MSMEs (micro, small and medium enterprises) too need applications to manage their receivables and payables across clients. While corporations need to overlook the health of the entire supply chain, both need an embedded solution to track their invoices and financing.
“That is where players like Vayana can play a much larger role; we deploy our software systems at banks, the corporates and MSMEs to help them manage the entire process,” Iyer said.
Complex systems
A senior fintech industry insider pointed out that trade financing and invoice discounting are long-term relationships cultivated by banks with large corporations. Since TReDS works through a bidding process, many companies prefer to go through their private relationship with banks, getting better rates and better tenures.
With every sector of finance – from payments to credit to account aggregation – moving into a public open architecture infrastructure, industry executives believe it is only a matter of time before more trades start getting processed through platforms like TReDS.
“What took five years initially should grow much faster, going forward..,” the executive said.