I’ve been beating the table pretty strongly in this blog on the subject of short-duration transactions on The Receivables Exchange.
I’ve pointed out the fact that the shorter the duration of the transaction the more the Buyer’s return is diluted by the fixed portion of the TRE fees and transaction costs.
The same is true for the Seller. The shorter the duration of the transaction the higher the effective cost of the fixed portion of the fees charged.
The fact that Buyers have continued to pay higher prices (accept lower yields) on some short-duration transactions has been perplexing to me, and the longer the situation has persisted the more perplexed I have become.
Now, this might be an anomaly. I might be right back in my perplexed condition tomorrow. But as I sit here this afternoon I have to just take a moment and enjoy what seems to me to be a significant event.
A certain Seller regularly posts the invoices of a certain Account Debtor. The terms call for payment in 10 days. The actual average holding period following auction has been roughly 14 days. For the past three months or so these invoices have been bought essentially immediately at a price that, in my view, has not reflected the impact of the fixed fees and costs.
An auction by that Seller, of invoices of that Account Debtor, has just closed. This time it was different.
The offering was “live” for about 24 hours. Usually these auctions close within minutes.
No Buyer immediately hit the “buy out” button this time. A couple of bids were made but not until after some hours had passed and at yield levels significantly higher than had been seen for these invoices in quite some time.
You could almost feel the tension.
This Seller was used to immediate and very favorable responses and they were not forthcoming this time. The deal stayed live overnight and there was no further movement on the bid.
I found myself wondering whether the Seller was beginning to calculate the increase in its daily effective cost of money as the deal sat there without further action.Ultimately the Seller accepted the bid that had been “sitting there” for hours.
What was great about that?
It was the RIGHT THING to do!
The Buyers were right, in my view, by finally holding back and requiring higher compensation for the short term deal.
The Seller was right, in my view, by not allowing the deal to sit without further bids any longer, allowing its effective cost of money to rise.
The action was rational on both sides.
And that made my day!
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It's About Time!
13 years ago
Chill, Chuck. Randomness pure and simple. Even a stopped clock is correct twice per day.
ReplyDeleteWell, Oldschool, you might well be right. As I said above, this might be an anomaly.
ReplyDeleteBut I've seen a change in some bidding patterns just since the beginning of the month.
There have been fewer auctions sold immediately at the buy-out price. There has been a notable increase in the number of auctions drawing cautious and higher initial bids. There have been more occasions when the Seller came up to meet the Buyer than was the case in the 3rd quarter.
This might be a matter of the Exchange having signaled a significant increase in volume on the way and Buyers biding their time to see what that looks like. But we can't really know til we see what happens.
In any case, I do appreciate your comments and you might well be correct. We'll probably have a chance to watch another auction from this Seller/Account Debtor pair pretty soon!