TReDS Compliance: A Game Changer for MSME Payments – Mandatory Registration & Penalties for Non-Compliance ✅

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Last Date 31 March 2025 (TReDS Platform for MSME)

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Understanding TReDS: Compliance, Benefits, Challenges & Case Studies Introduction

The Trade Receivables Discounting System (TReDS) is an RBI-regulated electronic platform designed to facilitate the financing of trade receivables for Micro, Small, and Medium Enterprises (MSMEs). It enables MSMEs to receive early payments for their invoices by allowing financiers (banks and NBFCs) to bid on the receivables. Large companies and government entities use TReDS to ensure timely payments to their MSME vendors. To promote financial inclusion and support MSMEs, the government has mandated certain companies to register on TReDS. Let's explore its compliance requirements, benefits, drawbacks, and real-world impact through case studies. 1. Meaning of TReDS TReDS is an electronic marketplace where MSME suppliers can sell their unpaid invoices (trade receivables) at a discount to banks or NBFCs. This process helps MSMEs get immediate cash flow instead of waiting for the full payment from large corporations.

How Does TReDS Work?

MSME Supplier Uploads Invoice: The MSME registers its unpaid invoice on a TReDS platform. Corporate Buyer Approves the Invoice: The large company (buyer) confirms the invoice's authenticity. Financiers Bid on the Invoice: Multiple banks and NBFCs bid to provide early payment to the MSME. MSME Receives Discounted Payment: The highest bidder pays the MSME immediately, deducting a small financing charge. Buyer Repays the Financier: The corporate buyer repays the financier on the due date of the invoice. TReDS platforms approved by the Reserve Bank of India (RBI) include:

✅Receivables Exchange of India Ltd. (RXIL)
✅Invoicemart (by Axis Bank & mjunction)
✅M1xchange

2.Compliance Requirements for Companies

A. Mandatory Registration for Large Companies As per the latest government notification (November 2024):

Companies with an annual turnover of ₹250 crore or more must register on TReDS before March 31, 2025. Previously, this requirement applied only to companies with ₹500 crore turnover, but the threshold has been lowered to include more firms. B. MSME Payment Compliance (Section 43B of Income Tax Act, 1961) From April 1, 2024, payments to MSMEs must be made within 45 days to claim tax deductions. Delayed payments will not be tax-deductible, increasing the tax burden on non-compliant companies. C. Filing of MSME-1 Form Companies must file MSME-1 every six months (April & October), reporting outstanding payments to MSMEs that exceed 45 days. Non-filing can attract penalties under the Companies Act, 2013. 3. Pros and Cons of TReDS for Companies

✅Pros (Advantages)
✔ Improves MSME Liquidity – MSMEs receive early payments, reducing financial stress.
✔ Strengthens Supply Chain – Timely payments enhance vendor trust and relationships.
✔ Regulatory Compliance – Helps large companies comply with tax laws and MSME payment mandates.
✔ Multiple Bidders = Lower Financing Costs – MSMEs get competitive rates for invoice discounting.
✔ Digital & Paperless – Streamlines transactions, reducing paperwork and administrative burden.

❌ Cons (Challenges)
❌ Administrative Burden – Large companies must manage TReDS onboarding, invoice approvals, and reporting.
❌ Costs for MSMEs – Invoice discounting involves a financing charge, reducing final payment received.
❌ Limited Awareness – Many MSMEs and corporates are still unaware of the system’s benefits.
❌ Delayed Adoption by Large Firms – Many eligible companies have not yet registered, causing bottlenecks in payments.