Micro, Small and Medium enterprises are one of the most crucial sectors of our economy. They are the key to the development and progress of a country’s economy. Post globalization period has led to massive employment and participation from these businesses. The growth of these sectors leads to the growth of the entire nation. These MSMEs account for 63 million units in India throughout the geographical expanse. MSMEs contribute around 6.11% of the manufacturing GDP and 24.63% of the GDP from service activities as well as 33.4% of India’s manufacturing output.
The primary issue with these enterprises is the low availability of an adequate amount of funds, especially when it comes to turning their trade receivables into liquid funds. Their working capital is disrupted, which influences the entire company. The Government and RBI (Reserve Bank of India) have established an institutional system to allow for ease for MSMEs to get finance from corporate customers through invoice discounting from numerous financiers to address this problem.
The Trade Receivable e-Discounting System (TReDS) is a system that enables, MSMEs to finance their trade receivables at rates that remain competitive with the market. It is advantageous for MSMEs since it leads to rapid recovery of trade receivables as well as the minimization of credit risk. Trade receivables are a financial metric that indicates the amount of money your MSME owes you. In other words, you will record a customer’s credit purchase as a trade receivable or popularly known account receivable.
Receivables demonstrate that your organization is receiving funds and serving your customers, however, it is necessary for an enterprise to use these receivables for their development and manage receivables at the same time to promote its growth. Establishing credit control measures can also assist you in managing your receivables. Consider the creditworthiness of a new consumer before offering them protracted lending terms. Your Trade receivables can be collected as rapidly as practicable if credit control is already in effect. Your MSME’s ability to manage accounts receivable is crucial to its success. You can make sure you are earning for the transactions you have generated, and you have the revenue you require to run your business operating by implementing efficient credit control and debt collection processes.