Receivables based financing has been growing rapidly world-wide with facilities being made available, mainly to medium/small companies and far less to the large companies. The NYSE Euronext stock exchange has taken a minority stake in The Receivables Exchange in the USA which sells receivables directly to institutional investors in a real-time, competitive auction process. The NYSE aims to provide another outlet for public companies to borrow money, complementing the long-term funding provided by a stock-market listing.
The Receivables Exchange in the USA provides a centralised and transparent electronic marketplace for selling receivables. It enables corporations to sell receivables directly to institutional investors in a real-time, competitive auction process. The operation is quite simple, see figure. The seller uploads the invoices they would like to sell in an auction. Next the seller sets up the auction specifying the closing date, the minimum purchase price, and the maximum margin they will accept. The Seller can also choose to set a buyout price, a minimum advance and maximum discount fee which, if selected, would immediately win and close the auction (similar to the 'Buy It Now' option on eBay). After the auction has been approved by The Receivables Exchange - it has to be a minimum of US$10k but can be made up of multiple invoices - it is posted online. Buyers are able to check the background of the seller and can see the details of each invoice. The bidding process, shown below, enables buyers to see how competitive their bids are and sellers to monitor the auction as it progresses. Typically, an auction takes less than 24 hours and can take less the two hours. Sellers receive the funds into their bank account the next business day.
Source: The Receivables Exchange
Like this item? Get our Weekly Update newsletter. Subscribe today