Bharat Connect for Business + Trade Receivables e-Discounting System - Solving for Working Capital for MSMEs

In the intricate landscape of India's financial ecosystem, Micro, Small, and Medium Enterprises (MSMEs) have long grappled with challenges related to cash flow management and timely payments. The introduction of Bharat Connect for Business by NPCI Bharat BillPay Limited (NBBL) and the Trade Receivables e-Discounting System (TReDS) has been a game-changer, offering technical solutions to these persistent issues.

What is Bharat Connect for Business?

Bharat Connect for Business is an interoperable platform developed by NBBL, designed to revolutionize B2B invoicing, payments, collections, and settlements. It enables businesses to publish, receive, pay, and collect invoices through a centralized system, ensuring standardization and efficiency in transactions.

Bharat Connect for Business works like Bharat Connect does for Consumer-to-Business Payments, where a single integration allows Bills to be published, discovered, paid, settled and reconciled. As a standalone service this is a great value-add as it significantly reduces the overheads associated with creating, publishing and sharing invoices and then doing the painful work of following up for payments.

But the real unlock for Bharat Connect for Business happens when we realize that this system was designed to sit atop, and unlock, the TReDS platform for MSMEs.

What is the Trade Receivables e-Discounting System (TReDS)?

TReDS is an online electronic platform authorized under the Payment and Settlement Systems Act (PSS Act) that facilitates the financing of trade receivables for MSME sellers. It provides an institutional mechanism for factoring trade receivables, enabling MSMEs to convert their credit sales into cash. Through an auction-based mechanism, invoices are discounted by multiple financiers, ensuring prompt realization of funds for MSMEs. This system addresses the critical issue of delayed payments, offering MSMEs a reliable solution to manage their working capital needs.

How Do Bharat Connect for Business and TReDS Work Together?

The integration of Bharat Connect for Business with TReDS creates a seamless ecosystem for MSMEs:

1. Invoice Generation and Publishing: Businesses generate invoices and publish them on the Bharat Connect for Business platform.
2. Invoice Acceptance: Once the buyer acknowledges the invoice, it becomes eligible for discounting.
3. Financing Through TReDS: The accepted invoices are then uploaded onto the TReDS platform, where multiple financiers can bid to discount the receivables.
4. Funds Disbursement: Upon successful bidding, funds are disbursed to the MSME, converting their receivables into immediate cash flow.

This collaborative process ensures that MSMEs have timely access to funds, reducing the financial strain caused by extended credit periods.

Benefits of the Integrated System for Businesses

The synergy between Bharat Connect for Business and TReDS offers several advantages:

• Improved Cash Flow: MSMEs can quickly convert receivables into cash, ensuring smoother operations and the ability to meet financial obligations promptly.
• Reduced Credit Risk: By receiving payments earlier, businesses minimize the risk associated with potential defaults or delayed payments from buyers.
• Competitive Financing Rates: The auction mechanism on TReDS allows multiple financiers to bid, often resulting in more favorable discount rates for MSMEs.
• Operational Efficiency: The digital nature of both platforms reduces paperwork, streamlines processes, and enhances overall operational efficiency.

With this new system implemented, an MSME can expect instant payment for all legitimate invoices. The impact this would have on multiple aspects of business operations is incalculable.

Stakeholders in the Integrated System and the Role of Banks

The primary stakeholders in this integrated ecosystem include:

• MSME Sellers: Businesses seeking to convert their trade receivables into immediate funds.
• Buyers: Corporates or other entities that procure goods or services from MSMEs and acknowledge the invoices.
• Financiers: Banks, Non-Banking Financial Companies (NBFCs), and other financial institutions that participate in the TReDS platform to provide financing by discounting invoices.
• NPCI and NBBL: The governing bodies overseeing the operations of Bharat Connect for Business and ensuring compliance with regulatory standards.

Banks play a pivotal role in this ecosystem. As financiers on the TReDS platform, they provide the necessary liquidity to MSMEs by discounting their receivables. This involvement not only aids in addressing the working capital requirements of MSMEs but also offers banks a lucrative avenue for asset generation. Additionally, banks facilitate the seamless movement of funds between buyers and sellers, ensuring the robustness of the entire payment and settlement process.

Additionally, Banks have another important role to play in this system wherein they would enable access to the Bharat Connect for Business platform for their Business Customers. Currently, a large number of businesses use Bank-provided Invoicing Platform - usually web-based. Integrating these platforms with Bharat Connect for Business would be a game-changer for the businesses consuming these services and for the Banks themselves.

In conclusion, the integration of Bharat Connect for Business and TReDS marks a significant advancement in India's financial infrastructure. By addressing the perennial challenges of delayed payments and working capital constraints, this combined system empowers MSMEs, fosters trust among business partners, and contributes to the overall growth and resilience of the economy.