Evaluate the following statements about working capital financing for businesses:
I. Working capital financing sources are broadly classified into spontaneous sources (which arise automatically from business operations, such as trade credit from suppliers and accruals) and negotiated sources (which require deliberate arrangement, such as cash credit, overdraft, and bill discounting from banks).
II. TReDS (Trade Receivables Discounting System), operationalised by RBI from 2017 and significantly strengthened by the RBI Master Directions of June 2026 (which relaxed mandatory seller due diligence requirements for MSME onboarding and enabled credit guarantees from government trusts), functions as a collateral-free working capital instrument specifically designed to help MSME sellers access liquidity against their trade receivables without waiting for payment from large buyers. Which of the above is/are correct?

Statement I is correct. Working capital financing has two broad categories: (1) Spontaneous sources: arise automatically as the firm conducts its business. Trade credit (suppliers extend credit, automatically financing inventory) and accruals (wages payable, taxes payable  unpaid liabilities that temporarily finance the business) are the most common. No formal application or negotiation is needed. (2) Negotiated sources: require formal arrangement with financial institutions. Cash credit (running credit limit), overdraft, term loans for working capital, and bill discounting/factoring are examples. Statement II is correct. TReDS, operationalised from April 2017, allows MSME sellers who have supplied goods to large buyers (corporates/PSUs) to upload the accepted invoice (trade receivable) on TReDS, where financiers (banks, NBFCs) bid to discount it  providing immediate cash to the MSME without collateral. The June 2026 RBI Master Directions enhanced TReDS further by removing seller due diligence requirements (reducing onboarding friction), enabling credit guarantee from GoI trusts, and permitting re-discounting of TReDS instruments.