Monday, June 15, 2009

"You've Got Bank!"

Have you heard the ads that some banks are running on the radio these days? How your banker really, really understands you and is on your side, working nights and week-ends to make sure you get great service?


If you have a small business, or even a pretty good-size business, going to your bank for financing is as pleasant as a root canal…and the odds of success these days are much lower.

The Receivables Exchange provides a truly unique alternative to traditional financing. It is not a borrowing. It is a sale of an asset. You are converting one asset…money due to you from a customer…to another asset…cash.

A Seller on TRE can choose which of its receivables it wants to sell, when it wants to sell them and how much it wants to pay for the ability to convert the bulk of that receivable into cash.

Of course, the Seller has to meet certain qualifications. The companies that actually owe the money have to agree to re-direct payment to the TRE lock-box. And there has to be a Buyer willing to bid on the receivable you want to sell.

But the qualification process appears to be reasonable and timely. I’ve already written about the benefits of the lock-box arrangement. And I understand that over 99% of the listed auctions are ultimately funded. That doesn’t mean the Seller got the terms requested; but the terms were apparently acceptable…because an agreement was ultimately reached.

The truly dazzling feature of the process is the speed. I have seen TRE transactions disappear from the auction list in, literally, a matter of seconds!

Imagine… as the owner or the CFO of a TRE Seller you determine you need some cash. You select a receivable due from a pre-qualified customer. You post the receivable for sale on TRE, specifying the pricing you’d like to obtain. Your desire gets communicated to all TRE Buyers, who are then able to bid on your receivable. When a Buyer makes a bid, you see it immediately and, at your option, you can accept it or wait for a better offer. When you do accept an offer the auction is closed and both parties are notified of the agreed-upon terms.

Now, I’m a Buyer, not a Seller, so I don’t actually know what message the Seller gets when an auction closes. But in effect the message is….

“You’ve got Bank!”

You’ve requested financing and gotten a commitment for essentially immediate funding, on terms that will not be changed by someone higher up the chain. And you’ve done it without ever having to talk to a banker.

How cool is that?

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