Invoice Discounting: The First Choice Of Every New-Age Investor
Out of many alternative investment prospects in India available to investors, invoice discounting is now gaining massive popularity with retail as well as non-retail investors. Although it has existed traditionally in the banking sector for quite some time, the opportunity for individuals to invest was non-existent until recent years.
How Invoice Discounting Gained Momentum In India
An investor can be anyone – an Indian resident, institutional investor, HUF/proprietorship registered in India, NBFCs/other financial institutions, or NRIs. With the onset of Covid-19, invoice discounting became very popular among investors. They saw it as a great investment avenue where they could utilise their idle funds and generate high profits. With an intent to protect themselves from economic fluctuations and market volatility, many investors rescued several MSMEs through their investments, making it a win-win situation for both. Many platforms, such as KredX, one of India’s favourite alternative investment platforms, offer investment opportunities in invoice discounting through vetted invoices. It allows investors to purchase invoices from bluechip companies at a discounted price, and the investors then receive the maturity amount at the end of the tenure.
Invoice discounting was only available through banks earlier. But over time, the investment avenue has been opened to various investors, especially retail investors. But before we talk about the return rate an investor can get, let’s first understand the nuances of business payment.
Invoices In The Supply Chain
Almost 95 percent of transactions happen using credit schemes rather than through instant cash payments. So, what effectively happens is that invoices get exchanged between vendors and investors for purchases/sales and are honoured in an agreed time. In this process, the investor holds a bill receivable, and the enterprise mostly gets a bill payable, which in many companies is paid within 30 to 90 days. What assures all parties in this arrangement is that the bill of exchange is a negotiable instrument backed by the Negotiable Instrument Act 1881 on platforms like KredX.
How Profitable Is Invoice Discounting For Investors?
The minimum investment amount usually varies with each company and can be as low as Rs. 50,000. On an annual basis, investors can get 10% – 14% interest rates on their investments on platforms like KredX. KredX offers its investors a plethora of facilities such as monthly financial reports, shareholder details, credit history, internal rate of return, etc. Moreover, the simplified process followed by the digital platform ensures seamless transactions and higher interest rates.
Investment in invoice discounting offers high returns compared to traditional instruments like recurring deposits, fixed deposits or shares in general. To be precise, the platforms charge a minimal margin from the transaction, and the rest, about 10% – 14%, is an absolute gain for the investor. The rate of funding proportion is getting higher among new-age investors as they come with a safer investment alternative with higher returns. In most parts, alternative investments have significantly influenced serious and accredited investors, ready to carry substantial risks. Without a doubt, when they’re successful, alternative investments can generate large returns faster than any other investment avenue.