Friday, 23 February 2018

"TReDS: THE REVOLUTION IN RECEIVABLES FINANCE"


The Receivable Finance Model or otherwise known as Factoring, although prudent, is presently riddled with challenges in India. A major reason for the setback is harsh NPAs in our country’s financial system. Financing today entails a frightening loop of never-ending documentations and verification's. This loop converts transactions into cumbersome ordeals where both the financier and the customer are severely tested for patience.  Instead of making the system can-dour, it diminishes the simplicity of operation.

 The onus is on the process to ascertain that the underlying trade has happened and that there is no double financing from the banking system either. There is also a time-consuming check gate to verify if the buyer’s acceptance is genuine and if the buyer has accepted the assignment of the receivable. Then there is the process of verifying if payment will be sent to the financier by the buyer on a due date.

The process starts with a ledger audit and verification of documents between the buyer and supplier. The seller rectifies phone calls to the buyer about material receiving and payable's departments, vetting of transport documents, reference checks to bankers, and multiple observations and clarifications. All of this is done at the expense of both parties involved, and this cost can be evidently avoided. The entire process is extremely exhausting, which is followed by resistance from all the parties - buyers, sellers and existing working capital bankers, to provide the required references and documents. Genuine customers find it hard to endure this stretch as they soon junk this system for normal working capital from banks.



TReDS, on the other hand, is devised to give simple and secured funding to the needy small and medium scale units. It is an RBI regulated trading platform for buying and selling receivables via bidding. Under the Payment and Settlement System Act 2007, RBI had issued TReDS license to only three companies in India, one of which is Mynd Solutions and M1Xchange (Mynd Online National Exchange) is its TReDS platform. M1 Exchange is an open trading platform which is transparent to all stakeholders and is end to end automated.

Post KYC and verification of respective documentation, MSME sellers, their buyers and interested financiers can get registered on the platform. After registration, sellers or buyers can start uploading their invoices/BOEs onto the platform. The complete process is automated and barely requires human intervention. The Invoices/BOEs are made visible to the buyers who then mark their acceptance for payment on the due date.

If the Invoices/BOEs get accepted, they get bundled into factoring units which are visible to the financiers along with other stakeholders. The financiers then bid for the same units. The bids are accepted at the end of the bidding window or when the seller accepts the bid at any point during the bidding window.

The onward settlement happens shortly after by payment from the financier to the supplier. The settlement is completed on the due date by debiting the buyer’s account with his bank and crediting the respective financier.

TReDS is the needful answer to all the concerns of India’s current factoring/receivable finance ecosystem. Being an open architecture for onboarding, all stakeholders can transparently see the bill details, the validated acceptance, the bill value, due date, etc. The financier can safely assume that the repayment of the discounted bill will directly come to him from the buyer in full without any discrepancy. Thus, TReDS accelerates the process of getting receivables for MSME and brings down the time exhausted in verifications and ledger audits.

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