Shame on me! I don’t know how I missed this but an article in the Wall Street Journal online edition just introduced me to Receivables Exchange, LLC. This company is described as the eBay of receivables financing and it may be a serious and threatening entry into the world of factoring.
The article describes the plight of a company called Data Drive Thru, Inc, a software company that had introduced a successful product but was having trouble generating the next round of capital funding due to the banking crisis. The company decided to leverage its hefty portfolio of receivables from some very well-known and reliable office supply retailers. But instead of shopping around for a factoring company, Data Drive Thru turned to Receivables Exchange where they posted their invoices and let anonymous lenders bid on the receivables.
Whoa, daddy! Anybody but me see some pretty significant implications for the receivables factoring industry here?
There were a couple statements that caught my attention in this article. First, the title of the web page is “Borrowing Against Receivables Gets Cheaper, Easier.” I think after reading about Receivables Exchange I don’t need to comment further.
Here’s another one…“Borrowing against receivables isn’t new… But with interest rates sometimes exceeding 30% or 40% annually and tales of unsavory business practices, this small corner of finance is considered by many to be a funding source of last resort.”
Translation - “Factoring receivables is really expensive so avoid it at all costs”
There are a couple more innovative programs with implications for the receivables factoring industry profiled in this article. I’ll get into them in the next two posts.
