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Statistical models bring objectivity & scalability

AP Factors personalizes MSMEs’ product offerings to satisfy customers using machine learning techniques and data analytics:

Statistical models bring objectivity & scalability

Factoring is especially important in situations involving small-ticket loans, which MSMEs prefer for a quick infusion of cash. Arth Padarth Factors & Finance (AP Factors) is the 7th factoring NBFC in India, which addresses the large MSME segment through factoring of high-quality corporate receivables. Its portfolio includes vendor finance, dealer finance, receivable factoring and MSME finance. AP Factors is the NBFC factoring arm of Artfine Group, which is a specialist structuring firm.

TCA Arvind Rangarajan is a Co-founder of AP Factors. He spent over 9 years in Standard Chartered Bank, Barclays Bank, Deutsche Bank and World Bank.

Value In Invoices Up 1000%

AP Factors positions supply chain financing as an asset class for capital markets alongside commercial vehicle (CV) pools and microfinance. The invoice discounting facility at AP Factors includes both anchor-led and vendor-led financing programs. As an NBFC factor, the company purchases receivables from MSMEs, so this does not appear as debt in their books. AP Factors began operations in February 2022.

TCA Arvind Rangarajan, Co-founder, updates: “We processed close to 22 invoices in the first month. By the end of 2022, we will have processed an average of 150 invoices per month, representing a multi fold increase (approximately 7x). We have also witnessed a whopping 1000% increase in throughput / value of invoices that were discounted, which amounts to Rs20 million by the end of 2022.”

ML, Analytics For Customers

Unlike other NBFCs and banks, where the process is slowed by extensive legal documentation, AP Factors’ process has a faster turnaround time because it is unsecured funding. The company has impacted over 700 vendors and dealers, primarily in the MSME sector. It already has a healthy pipeline of high-quality corporate receivables from its customer base validating its journey of credit inclusion for MSME. Its procedures are designed to allow businesses to expand without significantly increasing their manpower. The pent-up demand during the covid times presented the company with opportunities in some sectors, that desperately sought digitization.

AP Factors sees MSME demand from industries such as laptops and electronic components, as well as MSME supply to e-commerce websites. Rangarajan elaborates: “We personalize MSMEs’ product offerings to meet the needs of their customers using machine learning techniques and data analytics. Because most of our processes are digital, we can process remotely without disrupting our operations in the event of an emergency. We are able to achieve this growth with invoice discounting platform ArtfineBilz and process automation tools.”

AI, Bots, Software Code

A strong technology ecosystem in India for financial services will be a catalyst of MSME lending in the coming years. New-age NBFCs are increasingly leveraging analytics and data science for credit decisioning to speed up the loan process for MSMEs, making credit more inclusive. Assessment of creditworthiness by data-based statistical models brings objectivity, making the underwriting process scalable. AP Factors uses AI and bots to match GST to ledgers to bank statements to get an idea of the track record of sales and collections of an MSME. AI software automates routine tasks.

Rangarajan explains: “It checks the portal to ensure each invoice is scheduled for payment and downloading the CSV files with screenshots. The bot learns the actions and repeatedly performs them. Software code will parse this data to check payments, upload the invoice status on the system, with opening any new invoices on the portal. This expedites the procedures. improves the overall experience.”

The company has only 1 office with about 20 employees and does business all over India. Its key IT partners include Erutech, Ramsun, Fintheon and Cygnet.

Targets, Plans

The platforms AP Factors and ArtfinBilz have been working to democratize small and medium-sized enterprise working capital funding by converting and distributing supply chain finance through the issuance of debt capital market instruments (Pass-through-Certificates & Bonds/CP), thereby providing investors with alternate high yield investment opportunities. Rangarajan reveals: “We plan to assess more accurately the creditworthiness of MSMEs with quick TAT. We have developed credit evaluation procedures and risk management skills. Our immediate plans are to grow for the current FY with an AUM of around Rs2 billions and cash breakeven. If this momentum continues, we will grow our business by 5x in our second year of operations.”

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