A new online marketplace, the Receivables Exchange, was formally introduced on Monday after 18 months in development. It allows companies to sell their outstanding receivables at a discount to a panoply of financial institutions.
The 35-employee start-up, with offices in New York and New Orleans, should benefit from some good timing. The site provides a much-needed financing option for companies that are finding the doors locked at traditional credit markets. It could also be a safe financing alternative for distressed start-ups that might otherwise have to sacrifice equity in a conventional bridge loan.
“A small business today has about 60 percent of their working capital tied up in these invoices,” said Justin Brownhill, a former Citigroup executive who co-founded the company along with Nic Perkins, a former vice president at the video game advertiser, Massive. “What we are looking to do is build the eBay of working capital.”
For the last three months, the Receivables Exchange has been carefully selecting charter members. On Monday it opened up the site to anyone who wants to turn an i.o.u. into instant cash. A company seeking to sell on the site must first qualify by providing some financial information, so the site can verify its identity. Then the seller puts its receivables up for bid, either individually or as a bundle, specifying what kind of discount it is willing to offer.
For instance, a manufacturer might sell a $10,000, due-in-30-days invoice from Wal-Mart for $9,800. The manufacturer gets the $9,800 in cash right away, and the buyer gets the full $10,000 from Wal-Mart when the bill comes due. The Receivables Exchange takes a cut of as much as 0.5 percent from both the seller and the buyer.