Credit and Finance for MSMEs: The MSME Ministry in November 2018 mandated all providers with a turnover of more than Rs 500 crore and above and Central Public Sector Enterprises (CPSEs) to get registered on the RBI-regulated Trade Receivables Discounting System (TReDS). This was intended to be a game-changer in solving the liquidity crunch faced by MSMEs due to payment delays by their corporate and government purchasers.
Three years on, public sector firms are nevertheless refraining from utilizing the TReDS platform.
Of the total invoice discounting that has occurred on all the 3 TReDS platforms, at Rs 40,369 crores, central public sector firms’ share is at a meager 7.24 per cent, amounting to Rs 2,924 crore as per information collated by TheSpuzz Online.
It was at a mere 3 % by last fiscal at Rs 1,020 crore (Data Source: RXIL).
The 3 TReDS platforms that have been provided the license to operate are Receivables Exchange of India (RXIL) Mynd Solution’s M1xchange and Invoicemart, promoted by A.TReDS, a joint venture involving Axis Bank and mjunction services.
According to the information shared by the respective firms, in terms of volume, the percentage share of bill discounting completed by CPSEs was 18 per cent at RXIL (worth Rs 2,218.60 crore), 4.4 per cent at Invoicemart (about 600 crore-plus) and only .73 per cent at Rs 105.6 crore at M1xchange.
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A positive that was discovered is an raise in the quantity of CPSEs registered on TReDS more than last year. From 2020, the quantity of CPSEs who have registered on TReDS has enhanced from 156 to 216 by this year. As per DPE, there are 255 CPSEs eligible to be registered on TReDS platforms.
But, it is critical to note that, even today, not even 30 per cent of the CPSEs who have onboarded any one of the TReDS platforms transact on it. On RXIL, 107 CPSEs are registered but only 24 have completed a transaction. “Of these 24 firms, only five CPSEs have done transactions more than Rs 50 crores and 17 CPSEs have discounted bills less than Rs 10 crore,” stated Gaikwad. On M1xchange, only 20 out of 69 registered CPSEs have transacted to date.
Slow transaction development
While there is a slight development in transaction volumes from last year by CPSEs, it is not in line with the government’s directives.
In September 2020, then MSME Secretary A.K. Sharma had written to corporates to onboard TReDS and commence transacting to guarantee timely payments to MSMEs. The letter stated, “Many corporates are yet to join or transact. You are requested to onboard your company on the TReDS and start transacting.” TheSpuzz Online has a copy of this letter.
“While there is a clear order from the government that CPSEs should register on the platform and start transacting, it is not happening at the scale it should,” Ketan Gaikwad, MD & CEO at Receivables Exchange of India (RXIL) told TheSpuzz Online.
The motives are clear. “There is no will from the public sector firms to transact on TReDS because of the transparency that comes by making payments through the TReDS platforms,” stated Gaikwad. Once the bill is uploaded by the MSME supplier, it has to be accepted by the corporate. This acceptance creates an obligation for them to make the payment by the due date (inside the next 45 days), which is a challenge for CPSEs to adhere to, stated Gaikwad. If the payment is not made inside the time frame, it is deemed a default.
Payment delays
An MSME promoter TheSpuzz Online spoke to confirmed on situation of anonymity that their CPSEs purchasers penalise them by extending the payment date if they insist on passing their invoices on the TReDS platform. Several other sector spokespeople acknowledged it to be a prevalent practice amongst public sector firms.
Rajata Mehra, Partner at Rajat Chemical Industry and Member of CII National MSME Council stated that the challenge of payment delays with private firms has enhanced with the introduction of government initiatives such as the filing half-yearly returns by corporates with MCA on their dues to MSMEs. However, the challenge of payment delays from public sector enterprises is however to be resolved, he stated.
“We have witnessed several cases where payments are delayed invariably by PSUs, sometimes to the extent of a year. That’s a huge, huge period for an MSME,” stated Mehra.
Sundeep Mohindru, CEO at M1xchange stated that an additional challenge with CPSEs is that their internal processes are not as effectively aligned as these in the private sector. “In public sector, invoice approval takes 40-45 days, sometimes even more, so there is no value proposition for an MSME to raise their invoice on TReDS,” he stated.
Adoption by CPSEs
Last year, former Union Minister Nitin Gadkari had stated that there are payments dues worth Rs 5 lakh crore to the MSME sector from government agencies, public sector undertakings and main industries.
Unless the public sector enterprises commence transacting on the platform to clear their payments to MSMEs on time, the advantage from TReDS will be restricted. “The success of TReDS would be entirely based on the adoption by the public sector procurement system because there is a substantial cost-benefit and risk-reward ratio benefit for MSMEs here,” stated Mehra.
“Increased participation of CPSEs will indeed be a game-changer for TReDS and volumes on the platform,” stated Prakash Sankaran, MD & CEO, A.TReDS (that owns Invoicemart).
To raise adoption, TReDS platforms are working closely with MSME Ministry to guarantee bigger participation by PSUs on TReDS. “There needs to be a compulsion that for all the government buying from MSMEs, the payments should be made mandatory through TReDS, this will allow tracking of when the MSME payments are made and will also provide excellent economic data on the state of the economy ” stated Gaikwad.