Last Friday, the Huffington Post published the results of their small business survey and the news was grim. With around 600 responses, crunching the numbers revealed:

“Just about a third of the businesses that responded have had layoffs already, and almost half have reduced hours. Overall, they say layoffs are about equal to 15% of the total remaining jobs from the companies in the survey.”

While they readily admit the survey was not meant to be a statistical snapshot of the employment picture, they were kind enough to publish the raw data (Excel or text). Digging through that data, I notice two things. First were the heart wrenching stories respondents included about the demise of their businesses’ health (which I would recommend reading for yourself if you have the stomach for it). And second, the number of respondents - 41 by my count - who cited “credit” as a factor in the financial woes that led to cuts in staff, hours or projections for 2009.

Credit and liquidity problems for small businesses are bad right now. Actually, very bad. So bad in fact that the US government is considering a $200 billion plan to free up credit for small businesses. But for some companies, there are options that can help them free up the cash needed to keep the doors open and in some cases, perhaps even take advantage of opportunities the buyer’s market conditions provide.

I’ve written extensively here about supply chain finance options - including 3rd party financing and buyer/supplier collaboration - but there’s another option on the table that will help companies turn their receivables assets into immediate cash: The Receivables Exchange - an online auction where capital providers compete to purchase qualified receivables. The Receivables Exchange (TRE) has recently introduced a new model to the marketplace where for the first time, businesses (receivables “Sellers”) are able to increase their cash flow and free up their working capital (through lower DSO) by offering their outstanding receivables to be bid on in real-time by a global network of institutional investors and capital providers.

This new model provides several distinct advantages that make it unique among other options companies have to turn their receivables into cash and accelerate their cash flow:

• It does NOT require Buyer invitation for Suppliers to participate. Unlike 3rd party Financing and Buyer-funded accelerated payment, TRE’s online platform enables suppliers to offer their receivables up for auction/sale on an electronic exchange at any time with no Buyer involvement at all. Suppliers wanting to accelerate their cash flow forward can do so at any time.
• It is a True Sale of receivables. Receivables sold on the TRE platform come off the books from an accounting perspective and so LOWER DSO and free up working capital for companies. Additionally, because it is a true sale of the receivable, the cash received is not considered debt as it would be with asset based lending or through a line of credit….it is simply the sale of an asset.
• It introduces competition into the receivables sale…keeping costs down. Because capital providers are bidding on a valuable short-term asset, the seller of the receivable is assured that their cost of capital is kept as low as possible due to market competition for their receivables.
• It gives suppliers a source of cash flow independent of constrained credit markets. The TRE model enables suppliers to pull their cash forward by selling their receivables to capital providers independent of whatever credit lines they may or may not have.

With credit at the tightest levels since the 1930’s, suppliers can not rely solely on credit for their short term cash flow needs. Knowing your options (and if necessary, taking action!) is critical for survival in these volatile times.

Drew Hofler is the Senior Manager responsible for Ariba’s Financial Solutions suite of products. In addition to extensive experience in banking and financial services, Drew is ACH Accredited and held Series 7 & 63 NASD certifications.