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receivables-exchangeWe’ve covered plenty of companies that are trying to disrupt the finance industry and ease the flow of credit to small businesses and people. Here’s another finance-related startup to add to the list: Receivables Exchange, which lets small businesses trade their accounts receivable to cover short-term cash needs. The company raised $17 million in a third round led by Bain Capital Ventures this week.

Larger companies typically go to the commercial paper market where they can borrow to cover cash needs over a very short period — from one to 270 days. In Silicon Valley, some startups have used auction-rate securities for short-term access to credit, where they could issue debt at a variable rate. It worked right up until the credit crisis hit, freezing the market.

Receivables Exchange offers another alternative to both of those markets: a business can sell its accounts receivable, like invoices it has billed but haven’t received payment on, at a discount to institutional investors and hedge funds. The business receives cash now while providing a return for the investor.

about 60% of the typical small medium business has has about 60% of the working capital tied up in commercial receivables allow them to unlock that value by putting htose

“A typical medium or small business has about 60 percent of their working capital tied up in receivables, so this allows them to unlock that value,” said president Nicolas Perkin.

He added that about 80 percent of the paper trading on the market is investment-grade. Receivables Exchange’ average seller earns about $6 – 10 million in annual revenue. The average transaction size is $52,000.

The company has raised $30 million total from investors including Bain, Redpoint Ventures and Prism Venture Partners.
Receivables Exchange is one of several startups trying to tap value from relatively illiquid markets in different ways. Peer-to-peer lending companies like Prosper and Lending Club try to connect individual borrowers with individual lenders online, while SharesPost and SecondMarket are trying to build a market for shares of privately-held or pre-IPO companies.

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