On February 26, 2020, Ordnance Factory Board (OFB),an industrial organisation, functioning under the Department of Defence Production of Ministry of Defence, Government of India (GoI), has become the 1st government entity to adopt centralised invoicing platform ,TreDS (Trade Receivables electronic Discount System),under which a total of 41 OFBs adopted this platform,which would help smaller MSME (Micro, Small and Medium Enterprises) vendors access working capital easily.
Key Points:
i.Under this platform, MSME vendors will get financing facilities from OFB by collateralizing the receivable invoices under sovereign guarantee. These vendors sell products that go into making tanks, complex artillery pieces, or day-to-day use items such as helmets or gloves.
ii.At present ,the government departments such as the Defence Ministry transact only through a treasury account with the State Bank of India (SBI). NACH (National Automated Clearing House) mandates are not enabled in these accounts & preventing the onboarding of such departments onto TReDS.
iii.The adoption of TreDS by OFBs will help government departments such as the Ministry of Defence and Railway with limited MSME procurements to bring their whole vendor network on the single platform.
iv.Background: A largest number of MSME vendors facing problems to manage their working capital requirements as the contractual payouts to them often get delayed due to limited treasury sanctions.
They also struggle to maintain the supply flow to these manufacturing units across India due to the absence of low-cost financing options.
In the case of Defence Ministry vendors, this mismatch in supply often results in delaying of key projects and regular shipment of equipment to the defence units.
About Trade Receivables Discounting System (TreDS):
It is a digital platform to assist MSMEs to get their bills financed at a competitive rate through a vendue where multiple registered financiers can participate.
It will facilitate shortening of payment cycle and the smooth flow of liquidity and ensure that MSMEs do not miss out on business opportunities due to shortage of funds.
