We’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.
“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.
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