What Is TReDS? How It Helps MSMEs Solve Cash Flow Challenges

Cash flow is one of the biggest challenges faced by Micro, Small, and Medium Enterprises (MSMEs) in India. Even successful businesses often struggle when payments from buyers are delayed. Salaries, raw material purchases, vendor payments, and operational costs must be managed continuously—but payments from large corporates or government departments may take 45, 60, or even 90 days to arrive. This mismatch between receivables and payables creates constant financial pressure.

To address this systemic issue, the Reserve Bank of India (RBI) introduced a digital solution known as the TReDS (Trade Receivables Discounting System). TReDS is designed to help MSMEs receive their payments early by enabling financiers to discount approved invoices. Instead of waiting for months, MSMEs can unlock their working capital within days—sometimes within 24 hours.

Among the several players operating in this space, RXIL (Receivables Exchange of India Ltd) stands out as India’s leading and most trusted TReDS platform, promoted by SIDBI and NSE. RXIL has empowered thousands of MSMEs by offering a transparent, digital, and secure financial ecosystem that helps businesses overcome cash flow pressures without taking loans or pledging collateral.

This blog explores what TReDS is, how it works, and how platforms like RXIL are transforming the financial landscape for MSMEs across the country.

What Is TReDS?

TReDS is an RBI-regulated online mechanism that facilitates the financing of trade receivables of MSMEs through discounting. These receivables are typically invoices raised against large corporates, PSUs, or government departments.

In simple terms, TReDS allows MSMEs to get paid early for the products or services they have already delivered.

Key characteristics of TReDS:

• It is entirely digital.
• It does not require collateral.
• It uses the buyer’s credit rating—not the MSME’s—to determine financing.
• Multiple financiers participate, ensuring competitive pricing.
• It ensures transparency and security under RBI oversight.

By enabling financiers to discount MSME invoices based on buyer acceptance, TReDS offers a structured way to maintain cash flow and reduce payment uncertainty.

Why TReDS Was Introduced

MSMEs face several systemic challenges in accessing finance:

• Banks often hesitate to lend due to perceived risk.
• Collateral requirements restrict credit flow.
• Delayed payments disrupt working capital cycles.
• High interest rates on unsecured loans add financial burden.

RBI recognised these barriers and introduced TReDS as a formal, transparent, low-risk system that gives MSMEs easier access to finance without adding debt.

How TReDS Works: A Step-by-Step Guide

Understanding the TReDS mechanism is crucial to appreciating its benefits.

1. MSME raises an invoice

After supplying goods or services, the MSME generates an invoice for the buyer—usually a large corporate or PSU.

2. Buyer approves the invoice on the TReDS platform

This approval is the backbone of the system. Once the buyer validates the invoice, financiers view it as low-risk.

3. Financiers bid to discount the invoice

Multiple banks, NBFCs, and other financiers bid competitively to offer the best discount rate.

4. MSME receives early payment

The MSME receives the invoice amount minus discount charges—typically within 24–48 hours.

5. Buyer pays the financier on the due date

On the original payment due date, the buyer pays the invoice amount directly to the financier.

This model ensures the MSME gets quick access to funds while financiers earn a return based on the discount rate.

Why MSMEs Face Cash Flow Challenges

To understand the relevance of TReDS, we must identify the underlying causes of MSME cash flow struggles.

1. Payment Delays

Large corporates and government bodies often operate on long credit cycles. MSMEs struggle to balance daily operations until payments arrive.

2. Limited Credit Access

Traditional banks consider MSMEs risky. Without strong credit scores or collateral, accessing loans becomes difficult.

3. High Cost of Borrowing

Unsecured loans have higher interest rates. Many MSMEs rely on informal lending, which is even more expensive.

4. Fluctuating Business Cycles

Demand uncertainty, supply chain delays, and seasonal fluctuations create inconsistent cash flow.

5. Lack of Negotiation Power

MSMEs typically lack the leverage to insist on faster payments from large buyers.

TReDS directly addresses these systemic challenges by giving MSMEs an affordable, fast, and transparent method to access working capital.

How TReDS Helps MSMEs Solve Cash Flow Challenges

TReDS offers a unique value proposition that transforms the way MSMEs access finance.

1. Instant Access to Working Capital

With TReDS, MSMEs no longer need to wait 60 or 90 days for payment. Funds are released quickly, improving liquidity and enabling smooth operations.

2. No Collateral Required

Unlike traditional loans, TReDS financing does not require security. This makes it accessible to small businesses that struggle to pledge assets.

3. Lower Financing Costs

Because multiple financiers bid on invoices, discount rates remain competitive. MSMEs often receive better pricing than bank loans or overdraft facilities.

4. Transparent and Digital Mechanism

The entire process—invoice approval, bidding, settlement—is completed online. This eliminates paperwork, reduces errors, and ensures transparency.

5. Reduces Administrative Burden

MSMEs no longer need to chase buyers for payments. Once discounted, the repayment responsibility shifts to the financier and buyer.

6. Encourages Formal Credit Adoption

TReDS promotes financial inclusion by bringing MSMEs into India’s formal credit ecosystem.

7. Supports Business Growth

With faster payments, MSMEs can:

• Accept more orders
• Expand production
• Purchase raw materials on time
• Maintain a healthy cash cycle

This strengthens long-term business prospects.

Why RXIL Is the Preferred TReDS Platform for MSMEs

RXIL (Receivables Exchange of India Limited) is India’s leading TReDS platform approved by RBI. Jointly promoted by SIDBI and NSE, RXIL offers credibility, security, and one of the most efficient digital financial systems for MSMEs.

Key advantages of using RXIL:

1. Strong Institutional Backing

Being supported by SIDBI and NSE gives RXIL unmatched trust and reliability in the financial ecosystem.

2. Wide Network of Financiers and Buyers

RXIL connects:

• 44,000+ MSMEs
• 75+ financiers
• 2,600+ large buyers

This extensive network increases financing opportunities and improves bidding competitiveness.

3. Fast, Paperless Process

RXIL’s platform is modern, digital, and user-friendly—making onboarding and transactions seamless.

4. Better Discount Rates

The large number of participating financiers ensures competitive auctioning, leading to cost-efficient discounting for MSMEs.

5. Guaranteed Settlement

Once buyers approve invoices, payments are assured. This gives MSMEs complete confidence in the platform.

6. Enhances Buyer–Supplier Trust

By enabling timely payments, RXIL helps strengthen business relationships and support stable supply chains.

The Future of MSME Financing With TReDS

TReDS platforms represent the future of MSME working capital management. As India moves toward digital finance, platforms like RXIL will play an increasingly important role in addressing credit gaps.

The future will see:

• more corporates mandating TReDS for supplier payments
• wider adoption among small manufacturers and traders
• advanced analytics and workflow automation
• integration with ERP and GST systems
• increased government support for invoice discounting

TReDS is gradually becoming an essential tool for MSMEs aiming to grow sustainably while maintaining healthy cash flow.

Final Thoughts

TReDS is not just an alternative to traditional financing—it is a transformative solution that directly tackles the biggest challenge faced by MSMEs: delayed payments and cash flow disruption. By providing a transparent, fast, and collateral-free mechanism for early payment, TReDS empowers MSMEs to focus on growth rather than financial stress.

Platforms like RXIL are at the forefront of this financial revolution, offering efficient and secure access to invoice discounting. For MSMEs looking to improve liquidity, reduce financial burden, and strengthen operations, TReDS is one of the most reliable and future-focused solutions available today.