Sector Enterprises

1. Introduction

The move is aimed at addressing one of the biggest challenges faced by MSMEs—delayed payments—which often create cash flow constraints and limit business growth.

MSMEs are a vital pillar of India’s economy. According to the Ministry of MSME, more than 8.7 crore enterprises are registered on the Udyam Registration Portal and Udyam Assist Platform, supporting employment for over 38 crore people across manufacturing, services, and trade. Despite their significant contribution to GDP, exports, and employment, delayed payments from large buyers have continued to affect the financial stability of these businesses.

By mandating TReDS for CPSE procurement from MSMEs, the government aims to ensure that accepted invoices are digitally uploaded and made available for financing. This enables MSMEs to receive payments much earlier through banks and financial institutions instead of waiting for buyers to complete the payment cycle. The reform is expected to improve liquidity, strengthen payment discipline, and create a more efficient procurement ecosystem.

2. Origin and Intent

The Trade Receivables Discounting System (TReDS) is an electronic platform regulated by the Reserve Bank of India (RBI) and became operational in 2017. It facilitates the financing and discounting of trade receivables raised by MSMEs against corporate buyers, government departments, and public sector enterprises. Once a buyer accepts an invoice on the platform, multiple banks and Non-Banking Financial Companies (NBFCs) compete to finance it, allowing MSMEs to receive funds quickly at competitive rates.

The government’s decision to make TReDS mandatory for all operating CPSEs reflects its broader objective of improving the financial health of MSMEs and promoting timely payments. Alongside mandatory registration and usage of the platform, CPSEs are now required to disclose details of their TReDS transactions in their financial reporting and obtain certification from statutory auditors confirming compliance.

The initiative also aligns with India’s larger digital governance agenda. Over the past decade, the country has successfully expanded Digital Public Infrastructure (DPI) through systems such as Aadhaar, UPI, and GSTN. TReDS extends this digital ecosystem into supply-chain finance by increasing transparency, reducing information asymmetry, and creating a trusted marketplace where receivables can be financed efficiently.

3. Key Amendments

The latest notification makes it compulsory for all operating CPSEs to process invoices raised by MSME suppliers through the TReDS platform. This ensures that once invoices are accepted by buyers, MSMEs can immediately seek financing instead of waiting for payment under normal credit terms.

The notification also introduces stronger compliance measures. CPSEs must report their TReDS transactions and secure statutory auditor certification confirming both their registration on the platform and adherence to the prescribed requirements. These measures are intended to improve accountability and encourage greater adoption across the public sector.

The growing acceptance of TReDS demonstrates its increasing importance in India’s financial ecosystem. Invoice financing through the platform has expanded significantly, rising from approximately ₹40,000 crore in FY 2021–22 to nearly ₹3.47 lakh crore in FY 2025–26. This sharp increase reflects greater confidence among MSMEs, banks, NBFCs, and large buyers in digital receivables financing as an efficient source of working capital.

4. Impact

• Mandatory adoption of TReDS integrates digital invoice financing directly into public procurement, making timely payments a structured part of the procurement process rather than an optional practice. 
• MSMEs will gain faster access to working capital as accepted invoices can be discounted immediately through participating banks and NBFCs without requiring additional collateral. 
• Improved liquidity is expected to help small businesses manage operations more effectively, invest in expansion, pay suppliers and employees on time, and reduce dependence on informal or high-cost borrowing. 
• Enhanced disclosure requirements and statutory audit certification will strengthen transparency, accountability, and compliance among CPSEs in handling MSME payments. 
• The reform further expands India’s Digital Public Infrastructure by applying digital technology to supply-chain finance, promoting greater efficiency, trust, and financial inclusion across the MSME ecosystem. 

5. Conclusion

The mandatory use of TReDS by all operating Central Public Sector Enterprises marks a significant reform in India’s efforts to strengthen the MSME sector. By ensuring faster invoice financing, improving payment discipline, and enhancing transparency in public procurement, the government aims to ease one of the most pressing financial challenges faced by small businesses.

As digital adoption continues to grow, TReDS is expected to become a key component of India’s business financing ecosystem. The reform not only supports the financial resilience and competitiveness of MSMEs but also reinforces the government’s broader objective of building a transparent, technology-driven, and inclusive economy.