Get Working Capital at Competitive Rates - Accounts Receivable Financing at The Receivables Exchange
Accounts Receivable Funding - The Receivables Exchange
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Cash Is King
David Weild, Former NASDAQ Vice Chairman
and Chairman Capital Markets Advisory Partners |
If there is one lesson to be learned from the recent economic downturn, it is that conventional sources of financing can wither and that savvy corporations must explore and master new sources of funding.
Incidentally, The Receivables Exchange (TRE) offers just the sort of new market that promises to provide corporations with access to short-term liquidity which would otherwise be unavailable.
In retrospect, this past year brought many memorable moments and revelations to the world of finance, the majority of which were not so positive. I was in the offices of BlackRock with their head of trading last fall on the day that the yield on 90-day US Treasuries went negative. Secretary of Treasury, Hank Paulson, must have been having an out-of-body encounter similar to what we were experiencing. Investors had lost all confidence in the U.S. banking and money market system. And they were now willing to pay the U.S. Government to hold their cash! “We just want to know that we’ll get our money back, even if we need to pay for that privilege!” was the refrain heard across Wall Street.
Let’s face it, company managements are currently being called on to be more proactive with cash management than at any time since possibly the Great Depression. Banks have stopped new lending to all but the largest and most liquid clients. Pre-Crisis bank lines have been called due to the smallest breach in covenants, and consequently, more than one CEO has told his lender, “I’ll see you in court!” The traditional equity and debt markets, including the PIPEs market (Private Investment in Public Equity), are in disarray. Defaults on credit cards are higher than at any time since the early 80s.
This is what is meant by “liquidity crisis.”
Just this Monday, I was having lunch with the vice chairman of a money center bank who oversees their whole equity new issues business. He told me that the only IPOs which they are willing to take on in this market are for $500 million and larger offerings in established companies with clean balance sheets. He stated the reason behind this restriction as, “Liquidity is so important to institutional investors that the smaller deals for less-established or more highly-leveraged companies just can’t get done.” Hence, small and mid-sized business suffer.
Over the years we have advised hundreds of CEOs, CFOs and their investors. As the former Vice Chairman of NASDAQ, I’ve also enjoyed operating roles. With this experience behind me, I can confidently say that the launch of The Receivables Exchange could not be timelier. I would think that any aggressive and competent senior management team would want, at a minimum, to incorporate this marketplace into their business model as an alternative, or even primary, source of working capital. The Receivables Exchange provides the ability for a company to monetize a portion of their receivables through a real-time auction-style marketplace. This method of generating cash flow should be a fundamental practice for small and mid-sized businesses, if only for the purpose of understanding their full range of short-term cash options. Just like the early Sellers on eBay who would retail through traditional channels (e.g. car dealerships) and simultaneously auction cars on eBay, we believe that companies that monetize receivables through traditional channels (direct collection, securitization or factoring) will diversify and optimize cash management by posting their receivables on the Exchange.
Needless to say, any option that affords liquidity (e.g. The Receivables Exchange) is a welcome entrant, especially in today’s market. As TRE grows, the market will become more efficient. All markets do — it’s called the “network effect.” Additionally, pricing will become increasingly attractive for the posting corporations (Sellers). Therefore, staying involved with TRE as it develops may become an essential best practice for the cash management success of many businesses, just as selling goods on eBay has become core to many retailers.
Cash is King.
About the Author: David Weild is the former Vice Chairman of The NASDAQ Stock Market where he oversaw all listed companies throughout the world. He is Chairman of Capital Markets Advisory Partners (www.CMAPartners.com) and a Senior Advisor at Grant Thornton (www.GrantThornton.com).
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