Small Business in Smaller Cities Now Empowered by TReDS

usiFor an MSME owner, one of the major causes of concern is the cash flow problem, and it may hinder their business’s growth and expansion. There can be several reasons that create cash flow issues, such as persistent late payments by clients, using existing funds for inventory purchase leaving no capital for day-to-day functioning expenses, etc.

This becomes an even major concern due to the MSME’s inability to recover outstanding dues on time, which creates further challenges for conducting business activities and affects the profitability of the company.

To overcome this, many businesses have to resort to taking business loans from banks, NBFCs, or even private lenders, sometimes through personal assets being offered as collateral. And yet, not all businesses are deemed eligible, especially newer, smaller, ventures that may not receive the required funds from traditional finance sources. This often forces smaller companies into a vicious cycle that prevents them from expanding and growing. What begins with a lack of funds ends with eroded profits, and may eventually even lead to the closure of the business.

Recognizing this issue, the RBI has set up an institutional mechanism for financing these trade receivables, called TReDS (Trade Receivables Discounting System). TReDS is an online platform for financing trade receivables, by facilitating the discounting of both invoices as well as bills of exchange. The TReDS system involves three main components, and they are the registered MSME sellers, the Corporate buyers (companies with a turnover exceeding Rs. 500 crores) & PSUs/Government Departments, and the Financiers (Banks & NBFCs).

This has acted as a game-changer and has transformed invoice financing in India. It is a marketplace for receivables discounting that facilitates a smooth flow of liquidity, makes finance available at a competitive rate encouraging healthy competition. MSME enterprises no longer have to connect with banks on their credentials to source limits for discounting of their receivables. The collateral and balance sheet of MSME enterprise has not to be evaluated for financing on TReDS. Financing of receivables on the marketplace is provided by banks basis the credentials of the Buyer of goods from MSME.

Secondly, with the introduction of TReDS, MSMEs receive their dues from their banks or financers without having to wait for the credit period. This shortening of payment cycles and smooth flow of funds ensures that MSMEs do not lose out on business due to insufficiency of funds.

Thirdly, any delay in repayment of dues by Buyer on due date does not impact MSME as they don’t have to bear delayed interest cost / principal repayment. On TReDS the risk of the collection is transferred to Bank financing the receivables.

Fourth, any enterprise can avail of the benefits of TReDS from home/office and no physical visit is required. Any enterprise registered on TReDS, can get discounting of invoices raised on multiple buyers and from multiple banks without any additional paperwork or collateral. TReDS ensure safety and support in pandemic time for its participants.

The introduction of TReDS has helped businesses tremendously. Approximately Rs 20,000 cr worth of receivables have been financed by TReDS in the past 2 years by 35 banks. One such platform that provides a TReDS system is M1xchange from Mynd Solutions. It is an online platform that helps facilitate the discounting of invoices and Bills of Exchange on a pan-India basis.  M1xchange’s goal is to provide MSME supply chain-related finance at economic rates through an open bid process via multiple financiers.

On M1xchange platform, suppliers and their buyers experience marketplace benefits as multiple bidding options from different banks are made available, and they have the freedom to choose and accept the most suitable bid for every early payment transaction.

Although TReDS was set up as recently as 2017, it has started helping both small & large businesses tremendously, with ready-availability of finance for purchases & their payments. India today is booming with MSMEs; the small-medium enterprises are growing faster than ever in tier 2 and tier 3 cities. Apart from vendors in the tier-1 cities, TReDS today empowers a very large number of MSMEs from across tier 2 and 3 cities. On M1xchange, nearly 5000 MSMEs are registered and about 3,500 MSMEs participate regularly from across 352 cities.

At M1xchange, we understand the importance of working capital and how it can help drive up profitability. We want to help uplift MSMEs to reach their full potential. Today, on the M1xchange platform, more than 60% of MSME enterprises are from Tier 2 & 3 Cities, and 63% of the total financing is for MSMEs based in Tier 2 & Tier 3 cities.

90% of financing through the M1xchange TReDS platform has gone towards helping and empowering micro and small enterprises across India. We, at M1xchange, are glad to have played a role in helping the small businesses with much-needed liquidity.

There are currently 811 MSMEs from 88 cities from North India alone that are spread across 8 different states which are working with M1xchange and benefitting from TReDS. The largest of these states is Uttar Pradesh which has MSMEs participating on M1xchnage from 28 cities.

In the Western part of our country, 1,163 medium and small-sized enterprises participate in M1xchange. These enterprises are spread over 113 cities and have managed to get timely payments and keep the cash flow of their businesses healthy through TReDS.

Similarly, TReDS has helped empower small & medium organizations in the state of West Bengal too. In West Bengal, MSMEs from 11 cities participate on the M1xchange TReDS platform allowing them access to regular cash flow. Whereas down South, in the state of Tamil Nadu, there are businesses from across 22 cities who participate on the platform.

M1xchange has enabled Helpdesk to support all participants in their vernacular language. The team supports the MSME enterprise online to carry out the transaction smoothly. The ease of use enables participants to carry out the invoice financing online from their office/home and no physical visit is required from any side.

During this pandemic time, M1xchange has been used by MSME enterprises from across India to benefit their cash flow.

M1xchnage wishes for your safety and good health. We are available on1800-103-7261 (toll-free phone no) on a 16X6 basis or online vide helpdesk id helpdesk@m1xchange.com.

Also read these – Working capital financing, SME Finance, Invoice Financing, Accounts Receivable Financing, Supply chain financing