All companies government must join treds

All companies government must join treds

Most central public sector undertakings are reportedly absent on Trade Receivables Discounting System (TReDS), an online factoring platform that connects buyers, suppliers and financiers. This is unacceptable. The government must make all its arms and all public enterprises join TReDS to ease working capital shortage of micro, small and medium enterprises (MSMEs). Non-compliance should be made an offence, with the liability pegged on the CEO and the members of the board.

Around 10,000 MSMEs and 1,300 buyers (with a turnover of over Rs 500 crore) are now registered on TReDS. The total value of bills discounted (read: dues settled over the platform) is estimated at around Rs 23,000 crore. The volumes must rise, given that TReDS improves liquidity in the entire chain. A vendor just needs to upload to TReDS the invoice, which shows the sale of goods and services by the MSME to the buyer. The buyer authenticates the invoice.

Multiple financiers bid to take over the receivable from the supplier, the interest rate reflecting the creditworthiness of the large company on which the invoice has been raised, rather than that of the smaller supplier. The settlement file shows how much a financier has to pay an MSME seller and how much a buyer owes the financier on a particular date and time, bringing in credit discipline. Factoring has historically not taken off in India, because of the desire of large companies to use their monopsony power vis-à-vis their small vendors to delay payment for months. That bullying factor disappears in the TReDS arrangement.

There is no reason why government departments such as the National Highways Authority of India and Railways, large buyers from MSMEs with hefty outstanding payments, should not be part of TReDS.