A sudden, unexpected shortage of funds can be enough to sink a fledgling company. In fact, more businesses fail because of a lack of working capital than any other reason, The Receivables Exchange CEO Nic Perkin said. In recent years, this roadblock has become particularly perilous for small businesses as the recession forced banks to curtail lending and caused investors to become more hesitant.

The Receivables Exchange offers a solution. The idea behind the exchange is to enable businesses to receive cash advances against money that clients promised to pay them in the future. The exchange is an eBay-styled online auctioning block on which sellers post future cash inflow. Buyers then bid on that inflow, making a profit by paying slightly less than the amount the account will eventually be worth. The benefit to the seller is that the exchange turns future payments into cash on hand.

SmartBrief recently spoke with Perkin about how his company can help small businesses manage their finances.

How does The Receivables Exchange work?

The goal of The Receivables Exchange is to give small and midsize companies access to institutional capital.

Sellers upload their invoices to the exchange. Once approved, bidding commences in real time. The seller sets the duration of the bidding process — typically one day, although the duration can be sa long as 10 days. The seller can also decide to change the asking price for his invoice. By enabling people to move the price around based on what people are saying they’re willing to pay, the exchange becomes a place where there’s an equilibrium between buyers and sellers. The general mechanics of how stocks move around apply to invoices on the exchange.

What’s the advantage of using the exchange as opposed to other types of financing?

Sellers typically get 98 cents to 99 cents on the dollar for the value of their invoice, which is a much lower price than the premium they would have to pay for a bank loan. Also, using the exchange doesn’t add to a business’ overall risk the way other types of financing would. The entire transaction revolves around one particular receivable and doesn’t touch any other part of your business.

One of the biggest advantages is that the exchange is quick. If you’re a small business looking for a loan, how many institutions are you really capable of going to visit? It’s a huge process and much slower than the speed of business. The exchange, however, is fast and flexible, and you can interact with a great deal of financing institutions at once.

We think this solution is long overdue and far superior to any other financing product at efficiently distributing capital to where it is needed.

Have you had any trouble finding enough buyers for the exchange or dealing with fluctuation in activity?

There are obviously fluctuations. At the end of quarters for instance, there’s usually a spike in activity. So far, though, we haven’t experienced a lack of buyer demand.

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