| Small Business Banking is Dead. Auction your A/R Directly to Hedge Funds |
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| Written by Rob Guerriere | |||||
| Thursday, 28 May 2009 | |||||
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There is $15 Billion of liquidity for businesses who want to sell their accounts receivables. The discount fee ranges between 1 to 4 % based on credit worthiness. The average duration of posting an invoice to cash in your bank account is 3 days. 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. Read more... | |||||
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