The Standing Committee on Finance, headed by Shri Jayant Sinha has recommended integrating the Trade Receivables Discounting System (TReDS) platform with the GSTN’s e-invoicing portal. Through this, all the e-invoices can be automatically submitted to the TReDS platform to exchange data in real-time. Hence, it enables buyers and sellers to have access to e-invoices in a single window for factoring.
The statement comes as a part of the Standing Committee’s report on the Factoring Regulation (Amendment) Bill, 2020. An additional layer of authenticity will be offered by the availability of e-invoices, vetted via GSTN. It will make the TReDS platform more attractive and give financiers more comfort. The Committee quoted in its report, “This would encourage companies to move to the TReDS platform and create an effective working capital cycle for small and medium-sized enterprises”.
The report suggested that receivables from the central and the state governments should compulsorily come under the scope of TReDS through this legislation. The integration will allow the governments to discharge the approved payments on a timely basis to the various MSMEs.
The government entities can use the TReDS platform to ensure timely payment of discounted bills. Therefore, it allows them to get more bidders for their projects. The Committee claims that by making the GSTN’s authenticated e-invoices open for factoring, it would produce huge receivables that can be subsidised. Thus, it increases the quantum of factoring businesses, the competition and assures a liquid market through price reduction in factoring.
The Committee has also claimed that this provides valuable information to measure several corporates and government entities’ credit scoring. The continuous tracking of payments on the TReDS against the compulsorily listed e-invoices provides data insights on the economy’s state.
The e-invoicing system is being implemented under GST since October 2020. Currently, it applies to businesses with an annual aggregate turnover of more than Rs.100 crore in any of the preceding financial years starting from FY 2017-18. In the future, the central government plans to extend the system to small taxpayers as well. The integration between TReDS and the e-invoicing portal or the invoice registration portal will be effective after getting all the taxpayers onboard the system.
TReDS, founded in 2017, refers to an electronic exchange that enables MSMEs to sell receivables transparently and online. Three entities in India (RXIL, M1xchange and Invoicemart) run TReDS and have collectively discounted invoices accounting for approximately Rs.15,000 crore drawn by 25,000 MSMEs so far. On the other hand, factoring refers to a transaction in which an individual business (such as Micro, Small, and Medium Enterprise) sells its trade receivables to a third party for immediate funds. Seven Non-banking Finance Companies (NBFC) are in the factoring business.
The Factoring Regulation (Amendment) Bill 2020 was introduced in the Lok Sabha in September 2020. The purpose of the suggested amendments is to liberalise the restrictive provisions of the Act. Moreover, it allows the Reserve Bank of India to ensure a robust regulatory and supervisory mechanism in place.
For any clarifications/feedback on the topic, please contact the writer at annapoorna.m@cleartax.in
Annapoorna, popularly known as Anna, is an aspiring Chartered Accountant with a flair for GST. She spends most of her day Singing hymns to the tune of jee-es-tee! Well, not most of her day, just now and then.
