Trade Receivable Discount System (TReDS) - R R Padmanabhan, Director - Exim Academy

Trade Receivable Discount System (TReDS)



Cash is the lifeblood of any business.  However, profitable the company is, unless the cash cycle is regular, the operations of the company gets hit.  The cash burden is acute for MSME units. It is jocularly said that unit size and cash burden is in inverse proportion always.  Big units have the wherewithal to reach out to sources to tap money. Besides, they employ skilled finance professionals to manage their cash flows.  But MSME does not have such luxury. 

The normal sources of funds of MSME are:

  1.  Internal generation
  2. Bank borrowings
  3.  Savings of the proprietor
  4.  Loans from friends and relatives
  5.  Chit funds 

Many times, when all the above sources are exhausted, the entrepreneur has nowhere to go to meet his fixed expenses.  The expenses have time lines to be met, whereas the accruals do not.  In spite of the MSME Act that prescribes a fixed time limit for payment of outstanding by the big units in case of their procurement from MSME, seldom are they honored.  These units do not have the luxury of resorting to legal action to enforce payment.  Yes, one can enforce such action, but he has to forget getting repeat orders from the same big unit. 

Bank borrowings have a limitation in the sense that beyond sanctioned limit, the unit cannot borrow from the bank under cash credit operations.  But business is dynamic; one may never know when a new order would land up in the table.  One has to be ready to fund the raw material and other operations.  Similarly, one may know when the expected payment does not turn up but expense is. In fact, that is what the art of entrepreneurship is!

The hurdles faced by an Entrepreneur are set to reduce/go away with the entry of Invoicemart.  Invoicemart is a joint venture between Axis Bank and mJunction.  It is digital platform bringing suppliers, buyers and financiers in a single platform.  The system works like this:



R R Padmanabhan
Director - Exim Academy



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