Even the Recession Can Create Winners



Persistently ringing phones and a steady chatter of authoritative voices float over an opaque glass partition delineating the semi-exclusive domain of the sales department of The Receivables Exchange (TRE). During a time when daily headlines have announced increasing numbers of layoffs and business closures, the New Orleans-based start-up has launched, flourished, and hired more employees.

With an innovative business model designed to assist small and mid-sized businesses in need of immediate cash flow, the economic downturn nationwide has actually worked to the benefit of TRE. Developing news this week concerning the possible bankruptcy of CIT Group, one of the largest commercial financing companies in the United States, has TRE poised to step in and assist the businesses that could be faced with severe liquidity crises if their usual go-to lender fails.

TRE's modus operandi resembles traditional receivables financing, but with a modern twist borne of the age of Internet. They have created the hub of an online marketplace for business-to-business auctions of invoices--kind of like an Ebay selling only accounts receivable.

My own mind has limited facility for knowledge about business and finance, but Laurie Azzano, TRE's senior VP for marketing, kindly walks me through everything very slowly, using small words even I could understand.

"It's all about cash flow," she explains. "It's not really about companies in distress. It's about companies improving their cash flow and liquidity so they can invest in day-to-day operations."

Laurie outlines the example of a start-up company faced with huge demand for the goods they produce. With a large number of orders pending, the company has a promising future, but may not have the available cash flow to begin manufacturing to meet that immediate demand. If they can't fill their orders, the company could fail.

In traditional receivables financing, the company would approach a lender like CIT, which could buy their invoices to give them a quick infusion of capital, then wait 60-90 to receive repayment when their customers pay the bills.

TRE has shattered that mold by creating a locus where businesses in need of immediate capital can auction their outstanding invoices to the highest bidder. Like a typical auction, sellers decide how long they will accept bids and can set a reserve price, below which they would not sell. And like Ebay, TRE has a kind of "buy it now" option. According to Laurie, 86% of their auctions close at the buy out price. After the sale, the company receives payment for their invoices within 24 hours. Laurie describes it as "a whole new capital marketplace for small and mid-sized businesses."  

In particular, TRE is well suited to assist entrepreneurial start-ups because the buyers assess the credit ratings of companies with outstanding invoices available at auction, rather than simply the business selling them. So new companies can leverage the re-payment record of their customers, rather than having to convince a bank of their own reliability.

The co-founders of TRE are well suited to upend the traditional model of small-business financing. A veteran of a number of start-ups, President Nicolas Perkin knew the strain cash flow problems could impose on small and mid-sized business, and CEO Justin Brownhill has a long history of experience in capital markets and finance.

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Christina Davidson is a writer, photographer, and book editor who specializes in national security, terrorism, and war. She also writes for the food blog Feed The Masses.

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