Sunday, June 7, 2009

The TRE Value Proposition: #2 -- There’s Money in that Lock-Box

I admit it… I’ve had lock-box envy for years.

If you buy individual invoices, as I do, you know what I mean.

One of the difficulties of buying individual invoices is that it is typically done on a “full notification” basis. That means that every time I buy an invoice my client has to go to his customer and get the customer to acknowledge and agree in writing:

a) that the invoice has been sold to me,

b) that its check will be sent to me, and

c) that its check will be made payable to me.

(Full notification involves more than that but let’s deal with one issue at a time.)

Why is that a problem?

1) Some sellers just don’t want their customers to know they are selling their invoices,

2) Some of those customers just won’t agree to make their check payable to a third party,

3) Some customers don’t actually have the capacity in their accounts payable systems to generate payments to any entity except their actual vendor, and

4) Some customers who are willing to co-operate once or twice just don’t want to be bothered every week or even every month with the paperwork required.

Getting the notification and payment direction agreements signed is probably the biggest procedural hassle in my business. It causes quite a bit of business to be lost.

Why don’t all invoice buyers have that problem?

Some companies in the receivables-purchasing business are not single-invoice buyers. Instead they might buy or finance all of the receivables that a client generates. Or, they might buy or finance all of the receivables due to the client from certain specified customers.

In such a case only a single notification per customer, covering all current and future invoices, needs to be obtained from the customer.

That’s a huge advantage in reducing paperwork and potential customer objections!

A second distinction is even more significant…

If you, as the buyer, do enough business of this sort, you can negotiate a lock-box arrangement with a bank. In the typical case the bank will agree to accept all payments directed to the lock-box whether in the name of the account holder or not. So the customer doesn’t have to agree to make the remittance in the name of the buyer. They can cut their check or direct their wire or ACH payment in the name of their vendor!

 The customer doesn’t have to KNOW that the invoice is being sold, so

 The client doesn’t have to TELL its customer the invoice is being sold!

The only requirement is a change of remittance address...and the notice of that change only has to be acknowledged by the customer once.

The Receivables Exchange requires that those who sell invoices on the exchange direct all payments from Account Debtors to a lock-box at a major clearing bank.

TRE, as facilitator and clearinghouse for all transactions between its Buyers and Sellers, provides the missing link that has prevented buyers of single invoices from taking advantage of the substantial efficiencies of the lock-box system.

Consider this…a given seller might submit a regular weekly invoice to a customer. The TRE transaction platform and lock-box facility make it possible for a different buyer to purchase that seller's invoice literally every week, with no additional notification paperwork necessary.

TRE solves a procedural problem that, until now, has put the single-invoice buyer at a significant disadvantage in the receivables-finance market.

At the same time, it provides sellers substantially increased flexibility and control …they are not tied to a single buyer…they sell to the highest bidder every time they decide to sell…and they only need sell when they want to sell.

There IS money in the TRE lock-box…for both Buyers and Sellers!

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