Thread by @assaultkoder95

The ninth financial instrument which I want to share with you all is Invoice Discounting.

Before I deep dive into what it is & how you can use it, I will explain a simple scenario that businesses usually face.

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Most businesses in India run on credits especially at the producer's end ( aka company / person supplying material ).

Many a times, these businesses supply the product & then may have a 30/60/90 days or longer period before they receive payments.

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Now the problem is producer doesn't have capital to produce more goods & his recent supply's capital is blocked at the buyer's end.

In order to tackle this situation & maintain a decent operating cashflow, the idea of invoice discounting was proposed.

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Now, instead of waiting for say 90 days, a producer gives this bill to me, they make payment of say 95% of the total amount & at the end of the 90 days, the buyer gives the exact bill amount to me.

This way in just 90 days, I earned 5% interest on our capital.

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Now that we have a fair idea of what invoice discounting is, what if the invoice is defaulted?

In case we are using some reputed platform, chances of this happening are very low, I am using @TradeCred for the moment.

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They actually verify the invoice at both ends & once the authenticity has been proven, then only they list the invoice on their platform.

Coming to the idea of what of gains we can get, I personally got 11% in certain deals.

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From what I can see in the market some platforms make claims of 18-20% as well ( Jiraaf & BetterInvest ), I personally don't invest in them.

If done correctly, getting returns in range of 8-10% should be possible from my analysis so far.

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Invoice Discounting was part of my portfolio for sometime, I might be investing in it in future & when I invested, it was around 5% of my portfolio.

One of the problems that I faced was long tenures for certain good deals ( ~ 27-48 months ), which is an off for me.

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Overall, I feel invoice discounting is a good starting pointing for investors who have a medium to high risk appetite.

To reap good benefits, stay invested for 3 months ~ 1 year only & only go with trusted brands ( ACC, Flipkart etc )

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Coming to the list of platforms, I personally used @TradeCred but am aware about KredX, BetterInvest, Jiraaf & Oro Wealth.

I did some analysis of these platforms few months back & found tradecred to be suitable among them.

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I hope, by now, you have a fairly decent idea about invoice discounting & how it works.

If done correctly, it can actually give you good returns.

If this thread helped you in any way, please RT & share with others to help them as well.

#investing #InvestorMindset