TReDS invoice discounting and the 45-day payment rule: cash for MSME receivables
How TReDS platforms let MSMEs discount invoices on large buyers without recourse, what it costs, and how the MSMED Act 45-day rule and MSME Samadhaan help with late payments.
If you sell to large companies, PSUs or government departments and wait 60–120 days to be paid, TReDS (Trade Receivables electronic Discounting System) lets you sell your accepted invoices to banks and NBFCs on an RBI-authorised online platform and receive cash in a day or two, without recourse to you: if the buyer pays late, the financier chases the buyer, not you. The cost is a discount on the invoice, usually priced off the buyer's credit standing, which is often cheaper than a loan priced on yours. Separately, the MSMED Act, 2006 requires buyers to pay micro and small suppliers within the agreed period, which cannot exceed 45 days from acceptance, and charges them compound interest at three times the RBI bank rate if they don't.
This guide belongs to the MSME business loan interest rates overview. Figures are illustrative.
How TReDS works, step by step
- The MSME seller and the buyer both register on a TReDS platform. Several platforms are authorised by RBI under the Payment and Settlement Systems Act; the RBI website lists them.
- You upload the invoice (a "factoring unit"), and the buyer accepts it on the platform, committing to pay on the due date.
- Financiers (banks, NBFC-factors and others registered on the platform) bid a discount rate.
- You accept the best bid. The financier pays you the discounted amount, usually by the next working day.
- On the due date, the buyer pays the financier through the platform.
Because the buyer has accepted the invoice and the transaction is without recourse to the MSME, it is not shown as your borrowing in the same way as a bank loan.
Worked example: cost of discounting an invoice
An illustrative ₹10 lakh invoice accepted by a large buyer, payable in 60 days. Best bid: 9% a year.
Discount = ₹10,00,000 × 9% × 60 ÷ 365 = ₹14,795
You receive about ₹9,85,205 now, less a small platform fee (platforms charge transaction fees; check the schedule). Compare that with drawing ₹10 lakh from a cash credit limit at 11% for 60 days: ₹10,00,000 × 11% × 60 ÷ 365 = ₹18,082 of interest, and the amount still counts against your drawing power and limit.
You can use the processing fee and GST calculator by entering the invoice value as the amount and the discount for the period as the percentage (here 1.48%) to see the net receipt.
Who must be on TReDS
The Ministry of MSME's November 2024 notification under the MSMED Act requires companies with turnover above ₹250 crore, and central public sector enterprises, to onboard a TReDS platform (the earlier threshold was ₹500 crore), with a deadline of 31 March 2025. Onboarding does not force a buyer to accept every invoice, but it means your large buyers should already be on a platform. Ask their accounts team which one.
The MSMED Act payment rules in brief
| Provision | What it says |
|---|---|
| Section 15 | A buyer must pay a micro or small supplier by the agreed date, which cannot be more than 45 days from the day of acceptance; if there is no agreement, within 15 days |
| Section 16 | If the buyer pays late, it owes compound interest with monthly rests at three times the bank rate notified by RBI |
| Section 18 | The supplier can refer the dispute to the Micro and Small Enterprises Facilitation Council of the state; the MSME Samadhaan portal is used to file such cases online |
| Income-tax rule | Since the 2023-24 tax year, a buyer can deduct payments due to micro and small suppliers only when actually paid if they are paid later than the MSMED Act limit (section 43B(h) of the 1961 Act; the Income-tax Act, 2025 carries the provision forward with new numbering from 1 April 2026 — confirm the section with your CA) |
These protections apply to micro and small enterprises registered on Udyam; medium enterprises are outside sections 15–18. Traders' rights under these sections are limited; see Udyam registration.
TReDS vs other receivable finance
| Option | Recourse to you | Priced on | Paperwork | Watch out for |
|---|---|---|---|---|
| TReDS | Without recourse | Buyer's credit | Buyer must accept on platform | Only works with buyers on TReDS |
| Bill discounting from your bank | Usually with recourse | Your credit and the buyer's | Within your working capital limit | Uses your limit |
| Cash credit against book debts | Your liability | Your credit | Monthly stock and debtor statements | Receivables over 90 days often excluded from drawing power |
| Factoring by an NBFC-factor | With or without recourse | Mixed | Assignment of receivables | Fees; notification to buyers |
See cash credit vs overdraft vs term loan for the bank-limit options.
Checklist for using TReDS
- Udyam registration, PAN, GST and bank account in the business name.
- Board resolution or authorisation for companies and LLPs.
- Confirm your buyer is on the same platform and willing to accept invoices.
- Compare the discount rate with your cash credit rate for the same period.
- Account for the platform fee and any GST on it.
- Keep the invoice and delivery documents ready in case of disputes.
Frequently asked questions
Does TReDS show up on my credit report?
Because the transaction is without recourse to the seller, it is treated differently from a loan to you. Your bank may still ask about it when assessing working capital needs.
Can I discount invoices from a buyer who is a small company?
Only if that buyer registers on the platform and accepts the invoice. Mandatory onboarding applies to companies above the ₹250 crore turnover threshold and CPSEs.
What if my buyer keeps paying in 90 days without an agreement?
Under the MSMED Act, without an agreement the limit is 15 days and with one it cannot exceed 45 days. You can claim interest under section 16 and approach the state facilitation council through MSME Samadhaan. Weigh the business relationship; many suppliers first raise the tax consequence for the buyer.
Is TReDS a loan I have to repay?
No. You have sold the receivable. The buyer pays the financier on the due date.
Sources
- Reserve Bank of India — list of authorised TReDS platforms
- MSME Samadhaan — delayed payment complaints
- Ministry of MSME — MSMED Act and TReDS notification
- Income Tax Department — deduction rules for payments to MSEs
