Tuesday, June 2, 2009

The TRE Value Proposition -- #1 of an occasional series

My business is buying accounts receivable from small to medium-sized companies that need to accelerate their cash receipts. I’ve been doing that for nearly seven years. I began my investment career 35 years ago making commercial mortgages in the disastrous mid-70’s Florida real estate market. Experience has taught me that the most expensive activity in the financing business is dealing with the wrong people.

It took me quite a few years (and some significant losses) to learn that Warren Buffet is quite right when he says “you can’t make a good deal with a bad person”. But that’s actually a topic for another day.

Today I want to address the second-most expensive activity in the receivables-purchasing business. And that, for me, is unquestionably finding clients; sourcing the business. When I consider the opportunity cost of my time, nothing that I do in running my business has a cost even close to that of finding a client I want to work with.

So, when I think about the fundamental value proposition of TRE my first thought as a Buyer is of how much of the cost of finding clients TRE allows me to avoid.

That is not to say that I’d want to buy the receivables of just any company selling on TRE and it does not mean that the acceptance by TRE of a Seller carries with it any assurances; it does not.

However, as a Buyer on TRE I do know that:

a) a TRE Seller has already committed time, energy and money, demonstrating a serious desire and intent to sell,

b) the Seller has been willing to provide significant information about its business activity and finances to TRE,

c) the Seller has been willing to contact its customer(s) about changes in payment procedures,

d) certain threshold-level financial issues have been addressed, and

e) that the invoices posted for sale meet certain criteria made known to Buyers.

That’s not enough to support a “buy” decision but it is enough to take the Seller and its offer to sell seriously.

Getting to that point with a potential client in my conventional, non-TRE business would usually require a significant investment of time. The direct out-of-pocket cost might not be significant but the opportunity cost would be substantial.

As a Buyer on TRE, I get that far in the transaction-sourcing process for the relatively low cost of membership and with essentially no investment of my own time.

There is no marginal cost for the opportunity that is presented when an email arrives informing me of the posting of an auction on the exchange.

The idea that a potential transaction might just “appear” via email as I write this…and that I might be able to turn aside to consider the transaction and to potentially bid on it and buy it…and then turn back to finish the paragraph, can change a great deal about how I structure my business, allocate my time and approach my pricing strategy.

TRE does not give me everything that I believe is necessary to make a bidding decision. But it delivers the opportunity to me to analyze…it serves-up the decision for me to make. And it does that at a low cost and in an efficient manner.

That has value!

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