If there is a silver lining to the credit crisis and resulting economic woes, it is renewed energy in the supplier financing space. As a B2B e-payment evangelizer, I’ve long considered dynamic supplier financing a potential “killer app” to drive broad adoption of electronic invoicing and B2B e-payment. Supply chain financing is not a new concept, but SaaS technologies, increased A/P automation among large and mid-sized buyers, and the global economic recession appear to be driving significant growth. In this challenging business environment, supply chain financing allows suppliers to accelerate payment based on the credit-worthiness of their buyers. One of the most visible players in the market is The Receivables Exchange.
Traditionally, 30 to 60 day credit terms have been the norm for established trading partners. Today, due to economic uncertainty and volatility in the availability of credit, many business buyers are paying their suppliers in 75, 90 or even 120 days. The Receivables Exchange is an online auction marketplace that allows qualified sellers (suppliers) to sell their outstanding receivables (money owed to them by their customers) to the highest bidder. Rather than wait for payment, suppliers can sell their receivables for a modest discount, and receive funds with three days.
Sellers control the duration of the auction, the minimum advance amount, and the maximum fee they will pay. Sellers typically receive between 80% and 85% of the face value of the invoices within 1.5 days. Fees paid to The Receivables Exchange range from 0.3-0.7% of face value. Sellers can post as many or as few receivables as they want, as long as they meet the $10,000 auction minimum. Sellers are able to have as many live auctions occurring simultaneously as they want. The Receivables Exchange suppliers seem to be satisfied: reportedly 86% of sellers return to d sell additional invoices.
Seller privacy is a core value at The Receivables Exchange, and the supplier’s customers are never notified that their receivable has been sold. The institutional investors, including asset managers, hedge funds, and asset based lenders, that buy the receivables are contractually obligated to keep auction data confidential. Ninety-nine percent of the auctions close successfully, indicating that there is healthy competition among buyers for supplier invoices.
Minimum requirements for participating businesses selling receivables:
- At least 2 years of operational history
- Registered to do business in the U.S.
- A minimum of $1.5 million in sales on a trailing 12 month basis.
The Receivables Exchange Statistics
(Source: receivablesxchange.com of June 30th)
- Average Auction Size: $65,000
- Average Invoices/Auction: 4
- Discount Fee: 1.0% – 3.0%
- Shortest Auction: 20 seconds
- Average Auction Duration: 1 day
- Completion Rate: 99%
- % Buyout Price: 85%
- Number of Sellers: 300+
- % Repeat Sellers: 86%
- Average Seller Revenue: $30 million
- A/R Inventory: $9 billion
- Buyer Liquidity: $20 billion
- Industries: 37
- States: 40
- Investment Grade: 81%
- S&P 500: 50%
- Publicly Traded: 58%
The Receivables Exchange estimates there is a total market of $18 trillion in commercial accounts receivable nationwide. The Receivables Exchange is backed by Redpoint Ventures, with reinvestment from Prism Ventureworks.