The Receivables Exchange was the subject of a very positive New York Times article yesterday. The article entitled, "An Online Market for Selling I.O.U.'s," said this about the Exchange: "The site provides a much-needed financing option for companies that are finding the doors locked at traditional credit markets." I hope you'll read the article and the 30-plus comments posted about it, and let me know what you think about The Receivables Exchange as a working capital management tool.

  On Monday, November 17^th, The Receivables Exchange will launch. This is the culmination of two years of hard work, millions of investment dollars and remarkable amounts of sacrifice by the 35+ team members who have worked tirelessly every day to make it happen.  Here at the Exchange, our mantra is that the national and global impact of the Exchange will help thousands of companies and millions of employees and their families achieve the American dream.

It will bring flexible and competitive working capital to Main Street at the moment when Main Street needs it most. The financial crisis has revealed to all of us the disparity between the finance options that small and medium business owners need to manage and grow their business and the options that they actually have. Perhaps the easiest way to look at it is this, only things that are old, rigid and inflexible break. I think it is fair to say that today, our credit markets are broken. In contrast, things that are flexible bend - they absorb shock and they return to equilibrium. The Receivables Exchange, as a product, is designed to be a flexible working capital solution for small and medium-sized businesses with as much transparency as possible.  Companies on the Exchange are evaluated based upon their specific performance and not penalized for shocks and disruptions in non-related industries. They use the Exchange only when they need it, without personal guarantees, without all-asset liens and without their capital provider interacting with their hard-earned customers.

Not to over-simplify these complex times, but in business, there seems to me to be two types of change, voluntary and involuntary. The advent of the Web and its ubiquitous penetration is one of the greatest examples of voluntary change that subsequently led to a decade of countless instances of involuntary change. We are probably all in agreement that the near collapse of our financial system was not something that any one of us wanted or that we would have asked for as a catalyst for change. Unfortunately, tomorrow, like yesterday, you will wake up and the credit crisis will still be here.

This time, however, as the owner or manager of a small or medium business, you will wake up with a new tool to make your company more competitive, to help you initiate a new drive toward progress and ultimately, to grow your business.

I wanted to talk a little today about why the World needs a flexible, transparent and efficient marketplace for the buying and selling of receivables.  In my opinion, the answer is straightforward. Think for a moment about how much has changed in the last 20 years, specifically all that has changed in the way that people do business. It wasn't too long ago that the fax machine seemed like an amazing concept. I can remember showing a managing director at an investment bank where I worked how to attach a Word document to an email. He thought it was the most amazing thing he had ever seen.

Now fast forward:  cell phones, PDAs, total and complete connectivity. Then, ask yourself these questions. What has changed in the way that small and medium businesses secure working capital over the last 20 years? What about going back to your parent's generation? Or your grandparent's generation? It's not a trick question. The answer is nothing. Nothing has changed. Think about that statement for a minute.

In today's electronic and connected world, a Wichita business can source, contract and do business with a Moravian company that is selling a product with parts from Singapore. And yet, the way the Wichita company secures its growth capital hasn't changed in more than 100 years.

Innovation and associated productivity gains have affected nearly every aspect of life. Working capital management, in our opinion, should be no different. In today's complex and often intertwined financial markets, The Receivables Exchange returns business in its most basic form by providing a marketplace where businesses can convert their receivables into competitively-priced working capital. In fact, the largest source and use of capital for businesses around the world is trade credit. Trade credit is the standard push and pull between businesses - the push of payables and the pull of receivables. It's what working capital management is all about. Companies need cash to create their goods and services, so they push out what they owe (payables) as far as they can and pull in as fast as possible what they are owed (receivables). In doing this, they manage the cash position of their business, hopefully in a manner that allows for growth. 

The number one reason companies go out of business is not lack of market opportunity. It is poor working capital management. Turn on CNBC and you can see how critical working capital management is. The lock down in the commercial paper market is causing all kinds of problems and is putting our economy at risk. Commercial paper as a short term financing mechanism is really only available to the largest of players, and even they can't get the funding they currently need.  It's become so bad that the government has had to step in and insure paper so investors would begin doing business again. But what about the 70% of the GDP that doesn't have access to the commercial paper market? Credit card limits are getting halved as rates skyrocket, and other options are either getting more expensive or quickly evaporating.

I could go on and on about all the pressures that SMBs are under currently, which brings me to a conclusion that we, at The Receivables Exchange, believe is solid. A centralized marketplace where Small and Medium-size companies can get competitively-priced working capital - if and when they need it - will create productivity gains for SMB owners and managers.

One of the truly amazing things about the current credit crisis is how little of the opinion out there is truly informed. That should be the definition of "panic" - namely, uninformed people making decisions. We all know the old adage, and I paraphrase, "Those that forget the past are destined to repeat it." As I said in my last blog, the good news for the USA and the world is that the people leading us out of this (namely Paulson and Bernanke) know the past extremely well, and have no intention of repeating it on their watch. Of that I am fairly certain.

 Everyone is itching to call this a "crash." As one of my Wall Street contacts in the credit space told me, "If you think the stock market is bad, you should see the credit market." This week might have been the equalizer on that front as trillions more went flying out the window. The media is now out and about looking for people to mark as culprits in all of this, a sort of electronic version of stoning. This past week people made the decision to sell their 401Ks, leading to one the greatest mutual-fund-driven stock sales in history. Pretty fascinating stuff if you think about it. Everywhere you look people are looking at assets and thinking it must be worth less now than last month. I'm tempted to call the breeders I recently bought a Labrador from and bargain them down as well. That lab can't be worth what it was last month; everything has changed, right? Hopefully you are picking up on my sarcasm here. Now it is extremely unfortunate that the Rescue Bill as we now call last week's bailout took so long. Each day that the negotiations dragged on was one less day the credit markets had to begin thawing. So now even Governor Schwarzenegger is saying that due to locked down credit markets, the great state of California needs federal cash to manage its working capital requirements, and some economists are projecting a 4-5% decrease in GDP for 2009. 

The great thing about alarmists is the amount of opportunity they create as they run around sounding the alarm. America is doing business as usual, albeit in some sectors at a reduced pace and thus requiring some reorganization. Some people are hurting for sure. Those with the greatest sensitivities to increases in LIBOR and overall rate increases that can effect consumer buy decisions are definitely having a tough time. Those with the balance sheet to weather this storm will emerge stronger than ever and be part of the growth in the future.

So what can we learn from all of this. My view is that the main take-away is that transparency is good. What got us into this mess in the first place is the creation of financial products that did not provide transparency down to the electron level. By the time the market got into Inverse Floater CMO Traunches, we were in big trouble. The CDS market is a little scary too, quite frankly, although it looks like the CME is going to create the necessary standardization and transparency to make that market more transparent and efficient as well, and in the process should do extremely well.

And then there is what we are doing here at The Receivables Exchange, namely bringing transparency and standardization to the receivables finance market. I am more convinced than ever that as companies can access working and growth capital via a transparent and efficient market, using their most readily available asset, their commercial receivables, that the productivity gains we have seen all over the economy over the last 20 years will finally come to working capital management.

Personally, I'm a little tired of living through historic moments in history. I find it hard not to look back on the 1990s,  which after  the Wall in Berlin came down, had little to no historical moments. The Savings and Loan Crisis cost American taxpayers around $160 billion. The drop in the S&P Monday cost Americans around a Trillion, although much of that was pared Tuesday. That said, here we are in a historic moment - The Credit Crisis of 2008. Congress is in chaos, everyone is running around pointing fingers at each other and Henry Paulson would pull out his hair if he could.  So where do we go from here? Well, Congress is going to have to pass something. If they don't, it is hard to even imagine what the World will look like. But even when Congress does act, the credit markets are going to take time to work transparency back into the system. Interbank lending rates have skyrocketed and the cost is being passed to the end user, be that house buyer or business operator. The Fed is pouring billions of dollars into the system hoping to unclog lending arteries and it is just not trickling through, because fundamentally, this all comes down to one thing - trust in your counterparty. Same thing happened on a much smaller level during the Long Term Capital Management (LTCM) debacle. However in that instance Alan Greenspan and Gerry Corrigan, NY Fed President, called up everyone personally on the banking side, and made it pretty clear that they needed to start trusting their counterparties and doing business, or when the gang got back together, those that didn't, wouldn't be in the gang. In this credit crisis, the problem is too big. Wall Street no longer exists as it existed 6 months ago - or two weeks ago for that matter. Great Wall Street brands, Bear, Lehman and Merrill are gone. Great banking brands, WaMu and Wachovia, are also gone. More will go - and worldwide many more. We are in fact living history - unfortunately, in this case.

So what are President Bush, Bernanke, Paulson and much of Congress so worried about? Simply, they are worried about the ripple effects of what is a Wall Street problem infecting and spreading into Main Street. It's already happening. LIBOR is posting historic increases - and increased cost of capital for financial groups means increased cost of capital to businesses, if in fact you can get access to capital, which in turn reduces projects and risk taking by businesses, which in turn reduces GDP growth. In its most basic form, a shock to the system that then ripples out and creates longterm consequences to economic growth. With that said, it is my view that it does not need to be that way. Why should a growing business in Alternative Energy have an increased cost of capital because of a Credit Shock that has absolutely nothing to do with that business? Why should a business pay a cost of capital that is anything but the idiosyncratic cost of capital for that specific business? Why? Because in today's World access to capital is not company specific. It's not even sector or industry specific. In today's World if you are in business, regardless of your specific performance, your sector performance or your industry performance, you are in it with the rest of them -  a rising tide floats all boats, so to speak. But that is not the way it should be. Access to capital should be idiosyncratic; it should be on the company level, always, and regardless of company size. Not only that, but by introducing portfolio theory to the providers of capital and giving them risk diversification, cost of capital should be the lowest that the market can actually bear, it should be efficient, it should be flexible, and it should move only based on how your company performs and the specific risks associated with your business. That is where the world of working capital is going, with future shocks to the system contained and localized.