LegalPay: Bridging the cash flow gap caused by delayed payments in India

The delayed payment issue poses a significant challenge for numerous businesses throughout India. This delay often triggers litigation, resulting in cash flow disruptions for many companies. Moreover, collection of award post court verdict is another difficult task for winning parties. Against this backdrop, LegalPay is a startup that is providing financing options for both debtors and creditors, making the settlement process easier. This not only provides upfront amount to the winning party, but also gives flexible repayment option to the debtor. As a result, businesses can run smoothly without any disruption to their working capital flows.

In a conversation with the Bizz Buzz, Kundan Shahi, Founder & CEO of LegalPay technology pvt ltd said that the company is currently managing around Rs 3,000 crore of claims. By the end of 2024, the company is eyeing around Rs 8,000 crore of claims under management. According to the company, through its financing options, the startup is promoting alternate settlement mechanism. This helps SMEs, big businesses and startups to stay free from unnecessary litigation and free up working capital. The company has underwritten over 30,000 cases and continue to underwrite cases having both domestic and international jurisdictions for their litigations and arbitrations

Can you provide a brief overview about the operations of LegalPay? How do you support companies in easing the financial burden arising out of legal disputes?

We are helping businesses and parties who are involved in litigation with risk capital. In case there is a litigation between two parties and certain payment has to be paid by a party owing to the court verdict, we have seen such payment not getting collected. This is because the party usually prefers to drag the matter through appeal, which is cheaper in India as compared to other jurisdictions. Due to such a scenario, the other party, which wins the case, has to face difficulties. It faces disruption in the working capital along with other issues.

What LegalPay does is that we underwrite the bills receivable of winning the party and give certain percentage of money upfront. Similarly, we approach the other party to pay off the dues through an instalment facility provided by us. This becomes a win-win situation for both parties. So, we provide the ultimate solution for resolving payment dispute.

On one hand, the winning party gets the money upfront and on the other hand, other party gets the flexibility for payment. They don’t have to face pressure on their working capital. In a nutshell, both parties are financed through our ‘Quick Settle’ product. This is one segment of our business. Another segment is legal financing for which we provide funding for pursuing a case and our payment depends on the outcome of the legal matter.

We have seen in case of legal dispute companies usually create provisions against their contingent liabilities. Is it something that small companies not following in India?

We have all sorts of players in our platform. We have big startups, listed players and also MSMEs. Different players approach this problem differently. While some players plan it, others don’t. Another thing is that even if the award has come from court verdict, most players are not able to collect it. They can’t show it as revenue for this reason. So, there is no value added for the shareholders. Moreover, they don’t want to spend more money in collecting the money from the other party. Bad loan is a big problem for the entire industry. That is the reason that we as a player are solving a big problem for the industry.

How did you enter this segment? How big is your team now?

We have been in the industry for seven-eight years and know the sector well. We started with legal financing. But we realised that even if the award is given in one party’s favour, he is not able to collect money. Then, we realised that there is an opportunity for financing in this space. That’s how we entered the segment. Initially, we faced great deal of problems in convincing the solution to clients. But, this eased with time and now corporate houses give us cases in bulk for financing. As far as professionals involved in this segment, we deal with many legal professionals. For financing part, chartered accountants and CFAs (chartered financial analyst) evaluate the cases before financing. We are now a 110-member team.

What is the kind of claims under management that LegalPay managing now? How is the overall performance of those assets?

We have developed our inhouse technology platform to evaluate the bills receivables before underwriting those. There are around 100 parameters based on which we evaluate those assets. It’s a mixture of lending and discounting for which we leverage technology. As far as claims under management is concerned, we are managing around Rs 3,000 crore. We aim to end this year with around Rs 8,000 crore of claims under management. We are optimistic about reaching the target because we are solving a big problem for the parties. We are actually promoting alternate resolution mechanism by dissuading parties to go to the court. In this form of settlement, parties receive funds.

We have taken a minority stake in a Gujarat-based NBFC. We also have other financial institutions as partners. As far as NPA (non-performing asset) is concerned, we have less than one per cent of NPA in our book. Our book quality is very good.

Have you raised capital so far? Are you planning to raise more capital in the near future?

We have raised external capital from investors through two rounds. We are looking at raising around $7 million to $10 million through a mixture of equity and debt. However, we are not looking at raising that money. Second quarter of next fiscal year may be the time period when we may look at raising further capital.

How do you view competition in this space? Can you give a view on the type of regulations?

As far as regulation is concerned, the Reserve Bank of India is the regulator for our financing business. However, there is no regulation if we do some deal origination work for our NBFC partners.

In the legal financing business, there are no regulations yet because this space is on a nascent stage. With regard to competition, you can understand that this is a capital-intensive business.

Are you planning to come up any new products in the litigation financing or quick settlement space in coming days?

No, we are not looking at launching any new product. We will focus on educating SMEs and small businesses about our products. We will keep innovating within these spaces. Also, we have a good synergy with the law firms.

Are you profitable as an entity now? Can you throw some light in this aspect?

We are close to profitability. A major chunk of our revenue is deferred revenue for now. We have claims but realisation will happen after the closure of those cases. Currently, our revenue is contributed equally between litigation financing and quick settlement segments. Quick settlement segment is growing very fast.