I’m a big fan of collaboration between supply chain financing and procurement/accounts payable to reduce supply risk and enable vendors to access working capable at more reasonable rates. I’m even a fan of The Receivables Exchange, one of the pioneering providers in the space. I’m not a fan, however of its marketing techniques to suppliers, which remind me of the type of pitch that a loan shark or used-car salesman might use if they had access to my email. For this Friday rant, I’ll present a string of emails I received from a TRX account rep, and let you draw your own conclusions. I’ve added my own comments (in caps and brackets). Here goes:
From: Darryll Gillard
Sent: Friday, February 05, 2010 9:10 AM
To: Jason Busch
Subject: Information Request
Jason,
Many of the Financial Executives and CEOs we work with claim it’s one of the biggest challenges of the downturn: more and more customers demanding extended payment terms while cash reserves and credit lines remain tight or non-existent. Business executives tell us this is creating numerous operating challenges, including:
- Fluctuating cash flow
- Helplessness to plan for future growth
- Inability to manage cost of capital
- Reduced cash-on-hand …
(Email continues)
***************
From: Darryll Gillard
Subject: RE: RE: Information Request
Date: February 11, 2010 11:54:40 AM CST
To: Jason Busch
Jason,
I don’t mean to interrupt [YES YOU DO] but I just wanted to…
Speaking of The Receivables Exchange, I was reading an article on The Green Sheet that appeared to be a legitimate critique of the challenges small business owners face in a down economy. It then went on to say every form of financing is basically hopeless but that thankfully the receivable exchange was there to save us all. http://www.greensheet.com/emagazine.php?story_id=2217 i bet you’d agree there’s something not so kosher about this.
My concern has always been . . . if it sounds too good to be true . . . and from all The Receivables Exchange’s marketing collateral, and world class PR and Advertising capabilities, it seems flawless. As easy as 1, 2, 3. My sense was that given the incredible scale reflected in the Exchange’s marketing collateral (Sellers have more than $15B in invoice inventory available), the kinks must have already been worked out. In addition, given all the vetting by well known new reporters in Forbes, The WSJ, Crains, Dow Jones, Fortune, Inc, The New York Times, BusinessWeek, USA Today, CNN, Fast Company, CNBC, etc., they must really have their platform humming.
I was nearly there until I received a Google Alert this past Friday directing me to a complaint filed by The Exchange against a Seller (http://dockets.justia.com/docket/new-york/nyedce/2:2011cv00292/313579/). Apparently the Seller fabricated or greatly exagerated the value of more than $7,500,000 worth of invoices sold over exhange in 94 seperate auctions from July 2009 through May 2010. While TRE is suing the Seller, it appears that there is little liklihood of recovery. Based on the information in the Complaint, the Seller’s are very bad people with a long history of fraud. A simple Google search on their names corroberates as much . . . how is it that TRE didn’t catch this during their Seller due diligence process? Based on the information on TRE’s website, the foundation of my prior due diligence, they are risk management experts. They indicate they greatly exceed industry procedures and verify the validity of the invoices posted on the exchange, throughout the life of Seller relationships.
Intrigued, I did some additional digging and found another complaint filed by The Receivables Exchange against another Seller(http://dockets.justia.com/docket/louisiana/laedce/2:2010cv04152/144007/
). This time the Seller fabricated or greatly exaggerated the value of nearly $1,750,000 worth of invoices sold over the Exchange in 18 seperate auctions between April and August of 2010. In this case it appears that the Receivables Exchange verified the invoices with the Seller. Big surprise that the Seller didn’t admit the invoices it was posting on the Exchange for purchase were not collectible. Worse than that, if possible, is that the Exchange appears not to have ever obtained a priority interest in the invoices sold over The Exchange. The actual primary secured creditor appears to be a company by the name of CIMA TELECOM.
I am no expert on receivables financing, but even I know that you need to be in first position on accounts receivable in order to have a legitimate right to collect the proceeds from the accounts. In this case, even if the receivables were legitimate, and according to the complaint they are not, CIMA, at all times, had the right to collect from the debtor, which is to say that the Buyers on The Exchange never stood a chance.
This all seemed a bit strange for a company already managing Billions and Billions in volume, so I did some additional digging. Based on a meeting with the advisors of The Exchange this past week, The Exchange’s total transaction volume, for all of 2010, was under $250 Million. That is a far cry from the Billions and Billions they purport to transact.
The cases are all part of the public redord, but not surprisingly, are not mentioned any on TRE otherwise outstanding site. I thought you would find it interesting, as it seems to fly so much in the face of what The Exchange markets themselves to be, a liquid Exchange for the Purchase and Sale of Billions, if not Trillions, in invoices. If Buyers can not be assured that the invoices posted on the Exchange are legitimate (and how are they to come across that assurance with the Exchange handling all administration of risk, having no substantial experience doing so, and disavowing all responsability for loss within their agreements with Buyers), the Exchange, quite simply, can not be what its marketing collateral so professionally describes.