In the continuously evolving landscape of investments, achieving the perfect equilibrium between risk and reward remains challenging. Exploring safety-centric investment strategies and products that provide risk-adjusted returns is still tricky. This blog introduces cautious investors to invoice financing products that provide substantial returns while minimising risk exposure.

 At altGraaf, the aim is to democratise investment opportunities that were originally available to ultra-HNIs and institutions to individual investors. Speaking of short-term investment opportunities, invoice financing is the first instrument that comes to mind. Invoice discounting in the alternate investment ecosystem in India is growing steadily. Companies raise funds against their pending invoice from third-party financiers to fulfil their working capital requirements.

According to the latest estimates, ₹1 lakh crores worth of invoices are processed monthly. About half of this is serviced by players like banks, private lenders and the RBI-backed TReDS platform. 

altGraaf is here to change that narrative. Its disruptive innovation has led to creating a platform that facilitates individual investors’ earning from invoice financing just like family offices, HNIs and institutions do. It enables invoice discounting transactions between individual investors and companies seeking funds.

What is altArmour? How does it work?

Let’s understand with an example:

1. Let’s say Ratna Ltd (Seller) is a company that requires invoice financing against the invoice it raised for Drip Studio Ltd. Ratna Ltd (Buyer) got trade credit insurance against the invoices to ensure that if, in the worst-case scenario, Drip Studio Ltd fails to repay, the insurance company will do so on their behalf.
2. It’s important to reiterate here that all the invoices under altArmour have trade credit insurance that covers 100% of the individual investors’ principal and interest. 
3. Ratna Ltd reaches out to altGraaf. After a thorough evaluation of the invoices and the buyer’s creditworthiness, altGraaf agrees to onboard them onto the platform and support financing their invoice receivables via individual investors for a defined credit period between 30 – 90 days. 
4. All the invoice receivables under altArmour will have trade credit insurance cover, thus protecting investors’ money. 
5. At the end of the credit period, Drip Studio transfers the fund to altGraaf-controlled escrow account. Subsequently, altGraaf will distribute the fund among the investors. In the worst-case scenario if the buyer cannot repay, there will be an insurance claim to repay the investors. 
6. Insurance protection on 100% principal and interest along with escrow control on buyer repayments provide additional layers of security to customer’s investments. 

altArmour works in almost the same manner as altSmart, but there are specific differences which make it unique 

• Instead of a bank guarantee, the investment is secured with Trade Credit Insurance (TCI).
• The claim takes a little longer to pass through when compared to altSmart.
• Both offer a repayment tenor of 30-90 days, but altArmour offers a slightly higher yield than altSmart.

The process to claim Trade Credit Insurance

If the buyer company defaults on payments, the seller company can process the insurance claim. 

1. Notification of Non-Payment (NNP): The first step is for the company to report any unpaid debt within 90 days. 
2. Formal Claim Request: The insurance company provides a three-month window in which the buyer company must submit all the required documents for filing the claim. This includes invoices, buyer communication, and proof of delivery.
3. Claim Assessment: The insurer verifies the documents to ensure the claim is legit and the buyer hasn’t paid.
4. Claim Settlement: If the claim is valid, the insurer reimburses the agreed portion of the amount. This process could take 3-6 months, sometimes even more, depending on the complexity of the case and the insurer’s procedures. The claim amount will be received directly into the escrow account controlled by altGraaf, from where it is redistributed to the investors.

Risk Mitigants

• Escrow account control is a powerful concept in the investment process. It means that buyers pay directly to that escrow account, which in this case is controlled by altGraaf. This ensures that sellers cannot touch those funds, ensuring transparency and security in managing funds.
• In case of payment default, the insurance claim can safeguard the principal amount and interest on the investments, reducing the investor’s risk. If Drip Studio Ltd fails to repay the money, altGraaf will ask Ratna Ltd to process the insurance claim request. Due to the verification process, it could take around 3-6 months to settle the claim. The claim amount will be received directly into the escrow account controlled by altGraaf, from where it is redistributed to the investors.
• altGraaf team works with the buyers to have policies with renowned insurers to ensure smooth and efficient claim processes.
• Robust credit due diligence process to onboard credit-qualified borrowers onto the platform.

Risks Involved with Insurance

• While the insurance coverage includes the principal and interest, it’s important to note that the insurer may, in some scenarios, approve lower claims that do not fully compensate the entire amount. This means investors might receive less than the total amount owed, potentially leading to some loss on their investment. 
• Keep in mind that it can take time to receive an insurance settlement. It may take 3-6 months or even longer to receive the payment. 
• Other scenarios where Insurance firms deny or reduce payment claims include borrower & seller disputes, fraud, lack of documentation & proofs, etc. 

Final Thoughts 

AltArmour can be a great investment option for diversifying one’s portfolio. Even though we have taken as many measures as possible to reduce the risk significantly, no investment is risk-free. So, before investing, please evaluate the opportunity in detail before investing.

altGraaf understands that every investor’s risk appetite and return expectations might differ. To make sure there is something that fits the needs of every investor, altGraaf is offering a range of products apart from altArmour, like 

1. What is the minimum investment amount for altSmart?
   The minimum investment for altSmart is ₹95,000 
2. What does escrow control mean?
   Escrow control is a process where a third party manages the seller’s escrow bank account, where funds are received from buyers. The fund outflows will be as per the terms to the intended recipients. This ensures the transaction is completed as agreed upon, providing security and trust for both parties. In the case of altArmour, altGraaf has the escrow control.
3. What is investment tenure?
   The Investment tenure is 30-90 days.
4. Is my investment secure?
   Yes, the investment is protected by Trade Credit Insurance (TCI).
5. What is Trade Credit Insurance?
   Trade credit insurance is a type of insurance that protects investors from losses if a customer does not pay their debts due to bankruptcy, insolvency, or other reasons. It provides coverage for the principal and interest on the investment, adding an extra layer of security to your investment.

References:

https://economictimes.indiatimes.com/tech/technology/rbi-backed-treds-logs-quick-growth-after-slow-takeoff/articleshow/107209463.cms?from=mdr