The investment sector continuously innovates to create more investment opportunities for savvy investors. Striking the right balance between risk and reward has always been challenging when making investment decisions. This blog aims to guide individual investors to invest in an alternative product offering great risk-adjusted returns: altBlu, an invoice-discounting product.
What is altBlu? How does it work?
Invoice discounting is a financing method where businesses reach out to financial institutions to obtain funds against the invoices for the goods they have sold. Previously, it was accessible only to formal investors like banks and financial institutions. However, with some remarkable innovations, altGraaf has created a platform to connect such businesses with individual investors.
altBlu is quite similar to altArmour but with a few exceptions. There are two versions of the same product:
- altBlu with trade credit insurance and escrow control
- altBlu without trade credit insurance and escrow control
altBlu With Trade Credit Insurance and Escrow Control
- Let’s say Ratna Ltd. is a company that requires invoice financing against the invoice it raised on established large company Marico Ltd. Ratna Ltd. got trade credit insurance against the invoices that cover 90% of the principal. This means that if Marico Ltd. fails to repay, the insurance company will cover 90% of the principal.
- Ratna Ltd reaches out to altGraaf for invoice financing.
- altGraaf conducts a thorough due diligence process, which typically takes over 3 months, to assess the financial health and creditworthiness of companies like Ratna Ltd. This includes reviewing their financial statements, credit history, and business operations. Once altGraaf concludes that a company is fit for invoice financing, it lists the opportunity on the platform for individual investors, offering defined returns on their investment.
- The funds that individual investors invest and the repayment amount after 90 days will be transferred by the buyer Marico Ltd. through the altGraaf-controlled escrow account to the individual investors.
Risk Mitigants
- All the invoices in altBlu will be from well-established company invoices, which means the chances of a payment default will be very low.
- In the event of payment default, the insurance claim can cover up to 90% of the principal amount. If Marico 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. This means that even in the worst-case scenario, the investor will get back the majority of their investment.
- Escrow account control is a powerful concept in altBlu. It means that altGraaf, as the third party, controls the outflow of funds involved in the transaction as per terms. This ensures transparency and security, as the buyer’s payment is directed to the escrow account and the seller cannot access these funds for other purposes.
Risk Involved with Credit Insurance
- Customers’ disputes about the amount owed may lead to credit insurance providers not paying out on the policy.
- While the insurance coverage could be for a higher limit, the insurer may approve lower claims than the promised amount.
- Depending on the specific case, the claim settlement process may take 3 – 6 months or even longer.
altBlu With Escrow Control
This product is an invoice discounting product with escrow control managed by altGraaf. It carries a higher risk as it does not have a bank guarantee or insurance protection.
However, every company listed on the altGraaf platform undergoes rigorous due diligence and credit risk assessment by the altGraaf team to onboard only qualified borrowers on the platform. Apart from that, the invoices discounted in altBlu are from established companies (buyers) with a good credit history, which further reduces buyer repayment defaults.
Taking insurance on invoices typically reduces the yield of the product to investors. Since these companies have a good credit history, they are more likely to repay, thus finally resulting in higher returns against the investment.
Risk Mitigants
- The escrow account is controlled by altGraaf. This provides transparency in the flow of funds, as the seller won’t have access to the funds, ensuring the safety of your investment.
- Investments are made in established company invoices, reducing the likelihood of default payment.
Key Risk
- Credit Risk: If the buyer does not pay on time and the investment does not have insurance or bank guarantee protection, there is a risk of losing the entire investment. Investors should consider this risk before making their investment decisions.
Conclusion
altBlu is a product that offers investors a blend of security and growth potential by facilitating invoice discounting with established corporations. It can diversify your portfolio and potentially yield consistent returns. However, before investing, please assess your risk tolerance and understand the investment circumstances thoroughly.
If this product does not fit your risk-return criteria, you can choose from our other innovative products, including:
FAQs
- What is the minimum investment amount for altBlu?
The minimum investment for altBlu is ₹95,000 - What does escrow control mean?
Escrow control is a process where a third party controls the outflow of funds from the bank escrow account as per defined terms. This ensures that the transaction is executed as planned, offering both parties security and trust. The third party also ensures the funds are handed over to appropriate recipients. For altBlu, altGraaf controls the escrow account. - Is my investment secure?
Your investment is partially secured if trade credit insurance is offered as part of the investment. Some of altBlu products do not carry insurance. - What is Trade Credit Insurance?
Trade credit insurance is a type of insurance that protects the investor from losses if a customer does not pay their debts due to bankruptcy, insolvency, or other reasons. In the context of altBlu, it provides an additional layer of security by covering a portion of the principal amount in the event of a payment default.
