FAQs on TReDS

faqs on TReDS
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Who is eligible to be seller u/s 7 of MSMED 2006?

MSMEs are defined under section 7 of the MSMED Act, 2006.

  • MSME in the manufacturing sector is based on the gross investment in plant & machinery and
  • MSME in the service sector is based on the gross investment in equipment.

Definition as per MSMED Act, 2006

Type

Manufacturing Sector (investment in plant and machinery)

Service Sector (investment in equipment)

Micro

Up to Rs. 25 lakh

Up to Rs. 10 lakh

Small

Between Rs. 25 lakh and up to Rs. 5 cr.

Between Rs. 10 lakh and up to Rs. 2 cr.

Medium

Between Rs. 5 cr. and up to Rs. 10 cr.

Between Rs. 2 cr and up to Rs. 5 cr.

To be eligible to be a seller on the TReDS platform an MSME should be engaged in business for at least 1 year prior to registration.

Is it mandatory for both MSME seller and Corporate buyer to be registered on the TReDS platform? FAQs on TReDS

As per the RBI guideline, it is mandatory for the counterpart to accept the invoice on the TReDS platform. That makes it mandatory for both the buyer and seller to be registered on the TReDS platform for availing the services of financing/ factoring of trade receivables.

What is a factoring unit under the TReDS platform?

It becomes a factoring unit only after the invoice/bills of exchange uploaded by the MSME seller are accepted by the Corporate Buyer. Only those would be made open to auction/bidding for Financiers.  TReDS platform does not guarantee that a factoring unit will be financed by Financiers.

Note: Only Tax invoices can be uploaded and the minimum balance period should be 15 days. It should not be financed or encumbered elsewhere.

Note: Seller/Buyer can withdraw the factoring unit before acceptance of bid from Financiers but not after acceptance of a bid.

Note: There is no option with Financiers to revise their bids after acceptance. 

What happens if the factoring unit remains unfinanced by a Financier?

If none of the Financier finances the factoring unit(bills/invoice) or the MSME seller does not accept any of the bids in the auction, then it would be termed as unfinanced.  In such cases, the corporate buyer will settle the obligation in the normal course of business to the MSME seller outside of the TReDS.

What happens if the corporate buyer fails to honor the payment to Financier?

If the Corporate buyer does not settle/honor the payment due to the Financier on the due date it would tantamount to default and attract legal penal provisions against the corporate buyer. Any action initiated on account of non-payment will strictly be non-recourse to the MSME sellers.

What happens if the Financier fails to honor the payment to the MSME seller?

If the Financier fails to honor the payment to the MSME seller, the factoring unit will be marked as “FAILED”.  In such cases, the corporate buyer will settle the obligation in the normal course of business to the MSME seller outside of the TReDS platform. At the same time, it provides the MSME seller to re-initiate the auction.

 

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About CA Ankita Khetan 163 Articles
Ankita is a Chartered Accountant in practice and holds a Diploma in IFRS (from ACCA, UK). She is also a Commerce PG and Certified Independent Director (from IICA). She holds a certification in Forex and Treasury Management. Her area of expertise is GST and Income tax. She is passionate about reading, writing, and sharing knowledge on areas related to finance and taxation.

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