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In the ever-evolving landscape of investment, creating wealth is similar to navigating a multifaceted maze. Some individuals prefer the adrenaline rush of returns, while others prefer the stability and secure returns. If you find yourself in the latter camp as a prudent investor who values stability and wants to diversify into alternative investments that provide risk-adjusted returns, this invoice discounting product is just the product for you.
According to a survey by the Times of India, small and medium businesses require about ₹15 lakh crores of invoice funding annually. However, most of these funding needs remain unmet. This is where the range of invoice discounting products by altGraaf brings opportunities for retail investors to step in and fill in the gap.
Traditionally, invoice discounting was available only to banks and large financial organisations. However, the wave of innovations in the financial sector has made it available to individual investors, helping them diversify and earn competitive returns.
Let’s see how individual investors can invest and earn from invoice discounting with altSmart.
What is altSmart? How does it work?
Invoice discounting is a financing method where businesses reach out to investors to obtain funds against the invoices for the goods they have sold. altGraaf has created a platform where individual investors can now earn through investments in invoice financing. However, altGraaf does not finance the invoices of every business that approces it. A rigorous 2–3-month due diligence process ensures significant risk reduction on customers’ investments.
Let’s take a look at how altSmart works.
Let’s say Rupa Textiles (readymade clothes manufacturer) is a company that requires invoice financing against the invoices it raised on SalesBazaar (an eComm company).
- It reaches AltGraaf to finance the invoices it needs for its working capital requirements against a 90-day repayment tenure.
- Rupa Textiles, the seller, raises an invoice against SalesBazaar, the buyer of goods. The latter buys a bank guarantee against the invoices. This creates security for the seller, as the bank guarantees the buyer will pay the invoice amount.
- While financing the invoices via the altGraaf platform, Rupa Textiles transfers the bank guarantee’s POA (Power of Attorney) to altGraaf.
- At the end of the credit period (90 days), SalesBazzar repays the funds directly into the altGraaf-controlled escrow account. altGraaf then distributes it to individual investors.
- In the worst-case scenario, if SalesBazaar cannot repay the amount, altGraaf can invoke the bank guarantee ~20 days after the default to receive the funds for distribution to the investors.
- Therefore, all the invoice receivables under altSmart have a bank guarantee and escrow control, providing additional layers of security for investments.
Risk Mitigants for altSmart
- altGraaf Controlled Escrow Account— Escrow account control is a powerful concept because buyers pay directly to that account, meaning that the seller (Rupa Textiles) cannot touch those funds, ensuring transparency in managing funds.
- Security via Bank Guarantee – The bank guarantee fully secures investors’ money. If the buyer fails to repay the money, altGraaf will invoke the bank guarantee within 20 days of the default. Usually, it takes around five business days to receive payment from the bank after invoking the bank guarantee. The payment will be received directly into the escrow account controlled by altGraaf, from where it is redistributed to the investors. Thus, the investor’s principal amount and interest remain secured whether the buyer pays or not.
- Credit Due Diligence—altGraaf conducts an exhaustive three-month due diligence process to ensure the businesses on the platform are fit for invoice financing. This rigorous process eliminates credit-unworthy borrowers, significantly reducing borrower credit risk.
Risks Involved with Bank Guarantee
- Fraud Risk—If the bank finds any documents, such as the invoices or proof of delivery, to be fraudulent, it might reject the claim. However, altGraaf has stringent verification processes to minimise this risk and protect your investment.
- Operational Risks—This includes issues with documentation, communication, or gaps in process execution. However, altGraaf has a dedicated team that ensures all operations are carried out smoothly, minimising this risk.
- Legal Risk—If the documents provided contain inconsistencies or mistakes, the claim might be denied due to legal risk. The team mitigates this risk by working closely with legal experts to ensure all documents are accurate.
- Bank Risk—Bank risk involves the possibility of the issuing bank facing financial challenges, leading to scenarios where it might not fulfil obligations, like honouring a bank guarantee. The team works with reputable banks to minimise this risk.
Conclusion
altSmart offers a secure alternative investment to diversify your portfolio. For those seeking higher returns, altGraaf offers other innovative invoice discounting investment options like:
These five products combined cater to investors with a low-risk appetite to a high-risk appetite. However, like any other investment product, you should evaluate the risk before investing.
FAQs
- What is the minimum investment amount for altSmart?
The minimum investment for altSmart is ₹95,000
- What does escrow control mean?
In invoice discounting, escrow control is when customers pay into a trust bank account in the business’s name and vice versa. The invoice discounting company manages these funds until all agreement terms are met. This ensures the transaction is completed as agreed upon, providing security and trust for both parties. In the case of altSmart, altGraaf has escrow control, meaning they manage the funds until the investment terms are fulfilled, ensuring the safety of your investment.
- What is investment tenure?
The Investment tenure is 30-90 days.
- Is my investment secure?
Yes, the investment is secured by a bank guarantee.
- What is a bank guarantee?
A bank guarantee is a financial instrument issued by a bank to guarantee that a customer will fulfil their obligations under a contract or agreement. If the customer fails to fulfil their responsibilities, the bank will compensate the other party for the losses. It provides assurance and security for both parties involved in a transaction.
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