How TReDS Is Reshaping Working Capital for MSMEs

Delayed payments remain a persistent challenge for the growth of India’s micro, small and medium enterprises (MSMEs). For enterprises operating with limited working capital, payment delays can lock up funds that could otherwise support production, hiring, and business expansion. More than 92.8 Mn enterprises are currently registered on the Udyam Registration Portal, employing over 380 Mn people. Ensuring timely payments is therefore critical to maintaining cash flows and supporting the sustained growth of India’s MSME sector.

A Platform Gaining Scale

The Trade Receivables Discounting System (TReDS), operational since 2017, is enabling MSMEs to access working capital against approved invoices before their payment due dates. On TReDS, approved invoices can be discounted through competitive bidding by banks and non-banking financial companies (NBFCs). Financing is available on a collateral-free and without-recourse basis, allowing MSME suppliers to access funds without waiting for the invoice to mature. The scale of invoice discounting through TReDS has also increased significantly, rising from INR 400 Bn in FY 2021–22 to INR 3.47 Tn in FY 2025–26.

Onboarding Becomes Mandatory for Large Buyers

From June 2026, a notification issued by the Ministry of Micro, Small and Medium Enterprises requires operating central public sector enterprises to route MSME invoice settlements through TReDS, disclose invoice details as specified by the Reserve Bank of India, and have statutory auditors certify TReDS registration and compliance annually. The measure fulfils a commitment made in the Union Budget 2026–27 and is aimed at strengthening timely payment practices among public sector enterprises.

The measure could also encourage wider adoption of TReDS among large private-sector buyers, strengthening the use of digital mechanisms for MSME invoice settlement.

Dispute Resolution Closes a Gap

Onboarding buyers onto TReDS addresses one part of the delayed-payment challenge. Another relates to the resolution of disputes that reach the Micro and Small Enterprises Facilitation Councils (MSEFCs). The Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026, passed by Parliament in August 2026, introduces defined timelines for dispute resolution under the MSMED Act, 2006. Mediation is required to be completed within 90 days from the date fixed for the first appearance. If mediation is terminated, the matter must be referred for arbitration within 30 days, with the arbitral award to be made within 90 days of completion of pleadings.

A recent industry report tracking delayed-payment disputes estimates that claims worth more than INR 55,000 crore have been filed, with a significant share still pending resolution. An industry report on MSME delayed payments says that time-bound dispute resolution can help reduce the period for which working capital remains locked in unresolved claims.

The amended framework also retains the requirement for a buyer seeking to challenge a Facilitation Council award to deposit 75% of the awarded amount. Where proceedings to set aside a decree, award or order remain pending for more than six months, the court is required to direct payment of at least 50% of the awarded amount to the micro or small enterprise supplier.

Digital Rails Already In Place

The dispute-resolution changes build on digital infrastructure already developed for MSMEs. These include the free, paperless and self-declaration-based Udyam Registration Portal, the Udyam Assist Platform, which brings informal micro enterprises into the formal system, and the Online Dispute Resolution (ODR) Portal, launched in June 2025 to provide an end-to-end digital mechanism for resolving delayed-payment disputes.

Together, mandatory TReDS onboarding for central public sector enterprises and time-bound dispute resolution are strengthening the mechanisms available to MSMEs for managing working capital and delayed payments. With invoice discounting through TReDS rising from INR 400nBn in FY 2021–22 to INR 3.47 Tn in FY 2025–26, the growing scale of the platform also points to scope for wider adoption among eligible buyers.