Dow Jones Newswires Part 1
NEW YORK -- Actrade International Ltd. (ACRT) is charting new territory on the financial map -
a tad at a time. Literally.
The TAD program is Actrade's proprietary financing process, and something the New York
company hopes Corporate America warms up to.
Patented last year, Actrade's TAD program puts some novel twists on an old form of credit known
as trade-acceptance drafts, or TADs. These promissory notes are issued to sellers of goods and
services by buyers. Actrade steps in and purchases the TADs so that sellers get paid faster, and
buyers can stretch out repayment on their credit.
A little more than a year after its debut, the TAD program already has helped drive home a 126%
year-over-year revenue increase for Actrade, in fiscal 1998. And Actrade officials believe they've
only scraped the surface of a potential multi-billion dollar market of companies that meet the simple
condition of carrying accounts payable or receivable.
The biggest challenge Actrade faces is said to be its ability to capture this seemingly dormant
market base, and then, once in hand, procure the team and resources to handle it effectively and
profitably.
"If this as big as we think it is, then they need a tremendous management team and infrastructure to
grow and execute," said analyst John Chew, of the Jacksonville, Fla. hedge fund Ponte Vedra
Partners, and a personal investor in the stock.
But the company has its share of critics. Short-sellers have amassed a sizable position in the
company's stock, with hopes share prices will fall so that they can reap big profits.
The TAD program was conceived when Actrade Chief Executive Amos Aharoni - who came here
from Israel about 13 years ago - took a hard look at the accounts-receivable system and noticed
something absent.
"I felt there was something missing, a specific point where a commercial transaction is over, and it
(becomes) just a financial transaction," Aharoni told Dow Jones, "I felt that if I could convert
receivables into a negotiable financial instrument, it would be much easier to finance."
So that's what he did. He retrofitted a century-old TAD codified under the Universal Commercial
Code, tweaking it a bit for modern use, and from that the new TAD was born.
Essentially, it is a promissory note signed by a buyer of goods or services, made payable to the
provider. Once the buyer signs the TAD, the commercial transaction is virtually done - the provider
receives payment within 48 hours - and the receivable has been transformed into a financial
instrument.
The business is somewhat akin to that of a mortgage banker who originates loans, collects fees and
then sells the loans off to another party. The mortgage banker often isn't interested in holding the
loans, only booking the origination fees.
Actrade acts as a middleman, buying the TAD from the provider at a discount of the receivables'
face value, and then, collects the balance in monthly installments from the buyer's bank. Actrade
secures a sweet profit on its fees - it subtracts 2.5% for processing and another 1% per monthly
installment from the face value of the receivable, said Alexander Stonkus, chief financial and
operating officer. |
