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Amogh Suman

Lending along the supply chain: why the anchor matters

Value chain finance lets a small supplier borrow on the strength of a large buyer. India has the rails for it; the hard part is getting buyers to play their role.

Amogh Suman

A small supplier that sells to a large manufacturer is often owed money for 60 or 90 days. On paper the business is healthy. In practice it cannot buy raw material for the next order until the last one is paid. Value chain finance solves this by lending against the relationship with the large buyer, the anchor, instead of against the supplier's own balance sheet.

Three ways to lend along a chain

  • Vendor finance: the supplier is paid early against invoices the anchor has accepted.
  • Dealer finance: distributors buy stock from the anchor on credit, with the anchor's sales data behind the limit.
  • Invoice discounting on an exchange: financiers compete to buy the receivable, as on TReDS.

India already built the exchange

The RBI issued guidelines for the Trade Receivables Discounting System in December 2014, and the first platform went live in December 2016. Five platforms now hold authorisation. An MSME uploads an invoice, the buyer accepts it, financiers bid in a reverse auction, and the seller is usually paid within one or two working days, without recourse if the buyer later defaults.

The three original platforms financed about Rs 1.4 lakh crore in 2023-24, up from roughly Rs 800 crore in their first full year. Since a November 2024 notification, every company with turnover above Rs 250 crore, and every central public sector enterprise, has to be onboarded as a buyer.

The rails are built. The bottleneck is a buyer clicking accept.

Where it still breaks

Registration is not participation. A buyer that is onboarded but slow to accept invoices leaves its suppliers exactly where they were. By one estimate, only about 0.2% of India's MSMEs use TReDS at all. The anchor's procurement and finance teams decide whether the chain works, and their incentives rarely include their suppliers' working capital.

The fix is partly product and partly policy: invoice acceptance built into the buyer's existing payment workflow, e-invoices that flow to the platform automatically, and reporting that makes slow acceptance visible to the buyer's own leadership. The same model extends beyond factories. Farmer producer organisations selling to processors and exporters face the same wait, and could use the same rails.

  1. For anchors: how many days does an invoice wait for your acceptance today?
  2. For lenders: which anchors' supplier networks could you finance on data alone?
  3. For suppliers: which of your buyers are on TReDS, and have you asked them to accept?

Sources: IMPRI on TReDS; VJM Global on the 2024 notification.

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