On 7th November 2024, the Ministry of Micro, Small and Medium Enterprises (MSMEs) issued a significant notification that mandates certain categories of businesses to onboard themselves onto the Trade Receivables Discounting System (TReDS) platform. This move is part of the government’s continued effort to enhance the liquidity of Micro, Small, and Medium Enterprises (MSMEs) by facilitating faster access to working capital.
What is the Trade Receivables Discounting System (TReDS)?
The Trade Receivables Discounting System (TReDS) is an electronic platform that enables MSMEs to access quick and transparent financing for their receivables. Under TReDS, MSMEs can sell their outstanding invoices or receivables to banks and financial institutions at a discounted rate, thus enabling quicker access to funds that would otherwise be tied up in unpaid invoices. The system is designed to reduce payment delays, promote liquidity, and provide a more efficient method of financing for smaller enterprises.
Key Features of the Notification
The latest notification from the Ministry of MSMEs introduces the following key points:
- Mandatory Onboarding for Specific Companies:
- All companies registered under the Companies Act, 2013 with a turnover exceeding Rs. 250 crore.
- All Central Public Sector Enterprises (CPSEs).
These companies are now required to onboard themselves onto the TReDS platforms set up under the guidelines of the Reserve Bank of India (RBI).
- Deadline for Onboarding:
The government has set a clear deadline: all the companies mentioned above must complete their onboarding process onto the TReDS platforms by 31st March 2025. - Superseding Previous Notifications:
The notification supersedes two earlier notifications issued by the Ministry of MSMEs, specifically:- S.O. 5621(E), dated 2nd November 2018.
- S.O. 5622(E), dated 2nd November 2018.
These earlier notifications, which outlined guidelines related to MSMEs and trade receivables, are now replaced by this new directive, indicating an updated policy approach to facilitate better financing options for MSMEs.
Implications for Affected Companies
For companies with a turnover exceeding Rs. 250 crore and all CPSEs, the notification places a regulatory requirement to join the TReDS platform. Here are the key implications:
- Faster Payment Cycles: These companies will now have to process payments for MSMEs in a more transparent and streamlined manner, leading to faster clearance of receivables.
- Legal and Financial Compliance: Failure to comply with the government’s directive could potentially lead to regulatory or legal consequences. Companies will need to ensure that their internal processes align with the new requirement and that they complete the onboarding process by the prescribed deadline.
- Improved Supplier Relationships: By participating in TReDS, large companies and CPSEs can improve their relationships with MSME suppliers. Timely payments and smoother transactions will foster goodwill and potentially lead to better business outcomes.
Deadline and Action Plan
- The deadline to complete the onboarding process on the TReDS platform is 31st March 2025.
- Companies affected by this notification should begin preparing for the onboarding process as soon as possible to ensure they meet the deadline. This may involve coordinating with the RBI-authorized TReDS platforms and aligning their internal systems for seamless integration.
