Investing in Invoices
Invoices as an investment have only been available to investors for a short period of time. It used to be the playing ground of banks and other financial institutions. Thanks to technology, all of this is changing.
To educate investors so that they can make educated investment decisions, I've put together a list of things you should know about investing in invoices via Lend Partnerz.
Who are Lend Partnerz 's customers? What is invoice discounting?
Our target customer is a small to medium enterprises (SME) in the India whose customers are larger companies that demand long payment terms. We offer SMEs invoice discounting, which means that investors purchase the invoice for a small discount. The SME can then put the cash back to work servicing new customers. On the due date, the company that purchased the goods or services, makes a payment to escrow account opened by Lend Partnerz in the full amount of the invoice. The discount covers investors' return and our fee. Without invoice discounting SME would have to wait 30 to 60 days for payment and would have to turn down new customers while waiting for payment.
What goes into making a credit decision?
Lend Partnerz only accepts invoices that have been issued to businesses that have a history of trading for at least two years and a good credit standing in India. We run background checks for the seller company's directors and stakeholders, we also make sure the seller company has a good credit standing. To get a better grip on the company's health, we ask for the bank statements of all of their account for the previous 6 months. Bank statements offer a very intimate look into company’s financials and they are more up to date than annual statements. Bank statements and other sensitive information is not shared with third parties.
We use LPP Score to rate the SME and to ease out decision making for investors. We score the SMEs out of 1000 points. Up to 780 stands for excellent
Up to 720 for very good
Up to 680 for good
Up to 620 for satisfactory
Up to 580 for passable
Up to 550 for weak
Lower than 550 for unsatisfactory (Lend Partnerz does not accept these companies)
Invoice confirmation
We only accept invoices for goods and services that have already been delivered. We do not finance invoices for goods/services to be provided in the future. We ask the company paying for the goods/services to confirm that:
they've received them
they are happy with the quality
and they agree to pay directly to Escrow bank account opened by Lend Partnerz
Fees
Lend Partnerz charge investors minimal platform fees.
Interest rates
To investors, interest rates are displayed on an annual basis regardless of the duration of the invoices (APR - annual percentage rate). A 30 day invoice with an APR of 15% pays out 30/365*12 = 1.23% per 30 days. The 30 day rate is also known as the discount rate. If you keep your money invested for the whole year, investing in 30 day invoices at 15%, your annual return will be 15%. So why display the annual rate? Because it makes it easier to compare invoices with alternative assets (stocks, consumer P2P loans, bonds etc.). It is something investors are already used to, so why fight the tide?
We're the most liquid marketplace lender in India having average risk.
How is Lend Partnerz different from other marketplace lenders?
We're the most liquid marketplace lender in India having average risk. Liquidity denotes the speed at which you can turn your investment into cash. The average invoice duration is just 31 days. With most other platforms, the investment duration is measured in years (even with the existence of a secondary market it takes time and effort to sell every loan). This means Lend Partnerz is the best solution to increase the liquidity and lower the risk of your crowdlending portfolio
How are invoices different from business loans?
When you invest in a business loan, your credit risk is with the small business that borrowed the funds. When you invest in an invoice, your credit risk is with the larger company that purchased goods or services from the smaller company. Small companies are much more affected by changes in business climate, a loss of customers, regulatory changes etc. All else being equal, larger companies have less issues with making a payment on time compared to smaller ones.
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