Quarterly we read about new private equity funds being formed, each with a market focus and sometimes a unique twist on the conventional model. In recent years we haven’t seen too many new debt funding sources, though a few. 2nd lien or Jr. debt became popular, funded by hedge funds, prior to the great recession. And we saw the advent of unitraunch credit facilities providing varying layers of debt in a single instrument surface early this decade. In addition, we have seen a some asset based lenders offer hybrid credit facilities; they operate like a line of credit, but have some of the legal mechanisms of factoring …one such firm is Federal National Payables – they have focus on government contractors.
A new financing source has emerged in the past year. Taking from the framework of the stock exchanges, The Receivables Exchange has created a trading platform for accounts receivables. It allows a company with revenues of at least $1.5 million (and that has been in business for at least 2 years) to sell their accounts receivables on an as-needed basis to an open market in a controlled and confidential way. I really like it because it may augment your existing line of credit and possibly increase overall availability. For example, you can sell foreign A/R, which is usually excluded from most domestic credit facilities. Because there is no long-term commitment to sell your A/R, a company can use this credit facility to support tight cash periods when needed and not use it without penalty when cash flow is strong. Since your company is selling invoices either in groups or individually, it may likely obtain a better rate for your financially stronger customers. I was skeptical at first, but after getting to know some of the folks and researching the business I’ve concluded that The Receivables Exchange is for real and will likely be a major player in the years ahead …it is funded by Redpoint Ventures and Bain Capital.