Buyers typically buy the debt for less than its face value and make a profit on the investment when the notes are fully paid.
For sellers, the Receivables Exchange offers faster access to working capital, which is often critical for small businesses that have much of their cash tied up in receivables. There's a certain irony in this, since the site was founded in part to help generate cash flow for small businesses that had trouble landing bank loans during the credit crunch.
Observers say the site's screening process offers built-in vetting of sellers, which is appealing to banks whose default rates for small-business loans surged during the financial crisis.
And bankers say that corporate receivables, which typically are paid within a few months, offer another key advantage over traditional loans — liquidity.
"What we hear from the banks, and from the buyers in general, is it's really about having access to an asset class that they would not otherwise have access to," said Laurie Azzano, a senior vice president and head of marketing for Receivables Exchange LLC, the New Orleans company that runs the site.
The service went live in November of 2008 and now has about 65 buyers. There are more than 1,000 businesses that sell their debt through the site, and new ones join daily, said Nicolas Perkin, president and co-founder of Receivables Exchange.
Azzano said most buyers are hedge funds, alternative lenders and wealth managers; only a small number are banks, she said.
However, the company is "seeing a definite increase from banks as we gain more traction in the marketplace, due to their interest in risk-adjusted, short-term investments," Azzano said by e-mail.
"At the end of the day, we're an exchange," Perkin said. "We're essentially agnostic from the standpoint of who's buying the commercial receivables."
Both buyers and sellers are vetted by the Receivables Exchange before they can use the service. First NBC Bank in New Orleans is in the process of registering as a buyer. Ashton Ryan Jr., its president and chief executive, said he sees the site as an investment vehicle that could provide strong returns without a long-term commitment.
"When you grow, you have to stay pretty short with your investments," Ryan said. "You always are booking new loans, so if you go out and buy a five- or 10-year investment," there is little flexibility to recoup funds if you suddenly need them.
"The reality is we need the liquidity, so we have to make that our primary goal for our investment portfolio," he added.
The $1.06 billion-asset First NBC plans to buy up to $10 million worth of receivables from 10 to 12 different entities once it becomes registered, Ryan said.
More than 80% of the receivables that companies sell on the site reflect "investment-grade" customers and half are S&P 500 firms, according to a report released in March by Morgan Stanley.
"We're talking about selling companies that have quality invoices," Perkin said, adding that buyers have access to in-depth information about the receivables on which they bid, including the identities of both the sellers and their customers, detailed financial data about the seller, copies of the invoices, and payment histories for the customers.
For buyers, a key benefit of a tool like the Receivables Exchange is risk mitigation, said Nancy Atkinson, a senior analyst with the Boston research firm Aite Group LLC.
