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Small Business Banking is Dead. Auction your A/R Directly to Hedge Funds PDF Print E-mail
Written by Rob Guerriere   
Apr 30, 2009 at 12:56 AM

The Receivables ExchangeThere is $15 Billion of liquidity for businesses who want to sell their accounts receivables.  The discount fee ranges between 0.5 to 3%, and it is unkown to the customer/payee.  The average duration of posting an invoice to cash in your bank account is 1 day.  99% of auctions are successfully funded.  This is NOT factoring.

The World’s first electronic marketplace for trading accounts receivables went live November 17th, 2008.  The company is The Receivables Exchange (TRE), and is located, not in New York’s financial downtown, but in the Crescent City, New Orleans Louisiana.  Since November 17th, during the heat of the financial crisis and the stock market crash, there has been plenty of liquidity for businesses, small and large, to grow, survive, and operate.

 

Hedge Funds that trade commercial paper saw the opportunity to buy invoices, which the invoice payee is the same company as the commercial paper, for a premium return.  Let’s say you are a supplier to Wal-Mart.  Wal-Mart just placed an order for two truckloads of your product.  You now need to deliver and it takes a healthy chunk of working capital to produce the goods.  In the 30 to 60 days that your capital is tied up, you might come across opportunities that would enable you to grow your business.  There are hedge funds on the exchange who buy Wal-Mart invoices.    Not only that, but right now there is two times the amount of money available then receivables for sale.  This means that hedge funds are competing for your invoice.  As they bid for the business, it drives down the discount rate for you.


I found TRE on the Internet as a result of great press coverage.  With my background in supply chain technology, I was intrigued to the point that I contacted TRE and asked to interview a client who has sold invoices on the exchange.  They agreed!  However, the one exception is that I cannot reveal the name of the company since TRE clients enjoy their anonymity.   The company is a small entrepreneur lead bootstrapped organization that provides software and services to Fortune 1000 companies, government agencies, universities.

 

GTBP:  What lead you to find and use The Receivables Exchange?

 

Joe Entrepreneur:  With the downturn in the economy, business is slow.  No one expected the big drop in business.   We went from growth mode to survival mode in just a few months.  Cash flow is tight.  I had a $150K credit line with Citibank in good standing and they cancelled.  I then went to the SBA, and they too were unable to extend credit.  I began searching the Internet in November of 2008 and found TRE. 

 

GTBP:  Did the experience of getting set up and running with TRE meet your expectations?

 

Joe Entrepreneur:  They exceeded my expectations.  I believe they have a great business model.  I only wish that I thought of it.  I had some experience in my first year of business where I needed to use factoring services for cash flow.  It was a painful process of getting a third party involved with my clients.  Some of my clients refused to pay a third party.  With TRE, my clients have no idea that I am selling their invoices.   I am impressed by the fact that I can get cash in my account 24 to 48 hours after posting an invoice.  I am further impressed that I am getting 85 to 90% of the invoice value upfront and pay between 3 to 4 % every time I sell an invoice.

 

GTBP:  Do you foresee using TRE on an ongoing basis?

 

 Joe Entrepreneur:  Yes.  As a reseller of many business software packages, I am now taking cash payment discounts from my vendors.  I place the client invoice on TRE and turn around in two day to pay the vendor for the software.  Since I know what to expect with the exchange, I have built the exchange costs into my business revenue model. 

 

GTBP:  Joe, all the best to you and thank you for your time.

 

Yes, business owners no longer need to jump through the factoring service provider hoops.  A/R sellers don’t need to place extra collateral beyond the invoice.  They don’t need to pay extortion fees for the short term loan.  They don’t need to risk exposure to the client whom they are selling the invoice.  This is an A/R seller friendly service. 

 

TRE makes money by taking a small transaction fee from both the seller and the buyer.   The exchange is new and backed by venture capital companies Prism VentureWorks, Fidelity Ventures and Redpoint Ventures.  These companies also back many well known companies early on including: Netflix, MySpace, TiVo, and Ask.com.  TRE has also received international press coverage from:  The New York Times, Fox Business, Inc. Magazine, BusinessWeek, The Boston Globe, Forbes, and the BBC. 

 

Click here for The Receivables Exchange.


RJG


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