Business Account Receivables to Trade on New Exchange

An online market place for trading account receivables of small- and mid-size businesses could open for trading in the third quarter, the firm’s co-founder and CEO tells insideARM.

The Receivables Exchange will allow buyers and sellers of company receivables to trade in a real-time auction-style much like the Nasdaq market, said Justin A. Brownhill.

In the U.S. today the trading of company receivables, often lumped under the heading of factoring, is done on a one-on-one basis with little formal regulatory control.

This market in the United Kingdom is much more developed and sees about $500 billion annually in value, said Brownhill. That suggests the U.S. market could be worth as much as $2.5 trillion, he said.

A formal market will benefit both buyers and sellers, contends Brownhill. Buyers, or Capital Providers as the Receivables Exchange calls them, will find an active, liquid market with multiple investment opportunities. In addition, Capital Providers can use the exchange to sell receivables they don’t want to hold.

Leading buyers currently active in this sector of accounts receivables include CIT, GMAC and Wells Fargo, said Brownhill.

Sellers will have a central location where they can find the best price for their receivables and be paid quickly once a deal is made.

“More companies go out of business due to working capital constraints, cash flow problems,” said Brownhill. “This will allow firms to monetize a short-term asset, their receivables.”

The Receivables Exchange’s target market for sellers is businesses with annual revenues between $5 million and $500 million. 

The Exchange’s offices are in New Orleans. It has been marketing itself to buyers and sellers and recently opened an office in New York City to be closer to investors. Brownhill said the Exchange has buyers that have committed nearly $10 billion in receivables capital that they invest annually. The Exchange announced this week that MP Star Financial had joined as a buyer. On the sell side, about 100 firms have said they plan to participate.

The Exchange will conduct due diligence investigations of its trading firms, aggregating such information as bank data, corporate agreements, credit ratings, reviews of financial liens, and U.S. Securities and Exchange Commission filings.

“We will have all the relevant information for the buyer to review. We collect the information, like the New York Stock Exchange,” said Brownhill.

The exchange plans a private launch in the second quarter to test its systems and work out the bugs. If all goes as planned, it could open for public trading in the second half of the year.

The Exchange garners its revenues from membership and registration fees, and from transaction fees charged both the buyer and the seller. It is selling 50 Tier 1 memberships to buyers for $10,000 each.