It is a RBI initiative that enables SMEs (Small & Medium Enterprises) to discount their trade receivables with corporate buyers through various financiers. This mechanism aims to improve the trade receivable management of SMEs. The system has significantly enhanced the competitiveness of SMEs by addressing their critical working capital needs by providing easy access to funds, competitive discounting rates, fully digital process and seamless data flow. It empowers stakeholders with its 24 hrs TAT, 100% trust, transparency, digital flows and easy accessibility.
Trade Receivables Discounting System offers several key features designed to streamline financial processes for businesses. It provides non-recourse financing, which means that the financier assumes the risk of non-payment by the buyer, reducing the burden on the seller. Additionally, TReDS operates on a non-collateral basis, eliminating the need for physical assets to secure funding. The system promotes transparency and trust by ensuring that all transactions are conducted openly and can be easily monitored. Furthermore, TReDS is fully digital, enabling efficient and paperless processing of trade receivables, enhancing convenience and speed for all parties involved.
Transactions on TReDS platform are conducted digitally and start when the SME supplier of goods & services raises the invoice, and the buyer validates the same. This permits the financiers (Banks/ NBFCs) to bid against the verified and approved invoice. Once the supplier accepts the bid, payment is processed in 1 day and credited to the SMEs bank account.
SMEs upload their invoices onto the TReDS platform
Corporate buyers review the uploaded invoices and accept or reject them based on their validity and terms
Financial institutions, such as banks and non-banking financial companies (NBFCs), can bid on the discounted invoices
Once an SME accepts a bid, the financial institution pays the discounted amount directly to the SME's account
On the due date, the corporate buyer settles the invoice with the financial institution
Benefits
Small-to-Small (S2S) is a deep-tier financing system introduced by M1xchange under the aegis of the RBI to extend the benefits of invoice financing to the entire spectrum of SMEs. Powered by a cutting-edge credit risk evaluation engine, S2S Financing evaluates businesses, fostering financial hygiene and rewarding growth-oriented enterprises.
The S2S Flow outlines the operational process for Small-to-Small transactions
The process begins when an SME (acting as a buyer) initiates a transaction by submitting receivables from Tier-2 or Tier-3 suppliers onto the platform. These suppliers can now seek early payment by discounting their receivables.
The receivables submitted are verified by the buyer (the SME), ensuring they are legitimate and accurate. This verification is essential for maintaining the integrity of the transactions.
Once verified, the receivables are available for discounting by financiers on the platform. Suppliers can access funds by selling their receivables at discounted rates, thus receiving early payment.
Once verified, the receivables are available for discounting by financiers on the platform. Suppliers can access funds by selling their receivables at discounted rates, thus receiving early payment.
The Nigeria Story
The M1 TReDS platform has successfully facilitated the disbursement of a cumulative 120 billion Naira in business funding to small and medium-sized enterprises (SMEs) across the country. This achievement underscores the platform’s effectiveness in bridging the financing gap faced by SMEs, providing them with timely access to affordable capital. The 120 billion Naira disbursed represents a substantial boost to the Nigerian economy, supporting job creation, entrepreneurship, and overall economic growth.
