In the process of bill discounting, MSMEs (Supplier) can upload their invoices on any Trade Receivable Exchange of their choice. The invoice is then verified and approved by the Corporate (Buyer). After the invoice is approved, the Financiers (NBFC/Banks) bid against the uploaded invoice. This unique bidding mechanism gives the supplier an option to select the most suitable bid. The exchange calculates the final transaction amount and funds get transferred from Financier's bank account to the Supplier’s account. The amount is later paid to the financier by the buyer on the mutually agreed terms. Since TReDS works in a digital ecosystem, the registration process involves one-time documentation only. All the data is stored in a secure digital format, thus the discounting process involves no paperwork on M1xchange.
Coming to the overall benefit of this system. Suppliers enjoy collateral-free without recourse financing at a rate much lower than a bank loan. The corporate buyers, on the other hand, get an extension on days payable helping them better manage their working capital. Since the corporates are enabling their MSME supplier to get paid in a matter of a few days, they are in a comfortable position to negotiate on the overall cost of procurement. Financiers can build quality PSL Asset portfolio in MSME space with reduced risk of default.
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