I am reposting notes on Actrade each day, so people have a better understanding of Actrade. Whether you buy or sell or do anything is up to you. this info may be a little stale, but one will gain a little more knowledge hopefully.
The TAD Program Allows Actrade's Clients to Target Specific Customers
(Source: Actrade Marketing Material and John Chew Notes from May 1997.)
Slow Payers: These customers would like to pay on time, but for a variety of reasons, are often late. Extended payment terms allow them to buy the products they need and meet their financial obligations in a consistent, timely manner. Actrade Customer Dan Mauriello of Jalor Color Process, Inc. says, "The extended terms are what allow some of my customers to run their businesses. The only way Jalor is willing to offer these (extended) terms is by having a signed trade acceptance from our customers signifying that they have accepted the work done and specifying the date on which they will pay.it just makes the sale more attractive."
New Accounts: In today's competitive market, business managers and sales people are always looking for innovative selling tools. By offering six-month installment terms, a company can gain a real edge over the competition without sacrificing its profit margin. Customer Stewart Baker says, "TADs are an excellent sales tool, particularly when customers do not pay on time. Instead of waiting for them to pay, I get my money immediately, which goes right back into my business." Using TADs is particularly compelling for businesses with a high return on equity and slow payers. The faster these businesses are paid, the quicker turns can be made on capital.
Special Marketing Situations: An existing customer places an unusually large order. The company wants to provide the goods, but at the same time it doesn't want to use up existing credit lines for one account. The TAD Program allows the company to effectively accommodate these types of situations without interfering in any existing credit agreements it may have with other financial institutions. James Bateman, Jr. of Graybar Electric Co. comments, "The TAD Program offers us the convenience of factoring, and at the same time allows us the flexibility to chooses specific applications for its use.as opposed to assigning an entire accounts receivable base. We have found it a very useful tool."
Past Due: Barring the presence of a commercial dispute, these customers are most likely not paying due to a financial crunch of their own. They may have a portion of the funds available at any given time but not the whole amount. The TAD Program will allow them to fulfill their obligation with our involving collection agencies and at the same time preserve a working relationship with the company. David Bengston of Morton International, Inc. uses the program in circumstances when "Our clients who don't pay us on time, but we do not wish to shift (them) into cash-on-delivery or we don't want to give up."
Who Uses Trade Acceptances (Source: Actrade Marketing Materials)
The TAD ProgramT benefits different types of companies in different ways. ACRT tailors its sales message to the particular needs of its customers as follows:
Small Business
Small companies ($1 to $ 5 million in revenues) typically have problems securing more credit. In those cases in which a credit-worthy customer signs a trade acceptance, Actrade will overlook the financial strength of the seller and advance funds against the TAD. The TAD ProgramT also provides the following benefits:
ú 75% advance within 48 hours of delivery of TADs; balance upon collection from customer.
ú Up to five-month terms for customers.
ú No liens, minimums or UCC filings of financial statements required.
ú No minimum volume or annual fee.
ú Credit investigations and evaluations on prospective TAD accounts.
ú Built-in collections facility.
Medium-Sized Businesses with Existing Lines of Credit ($5 to $30 Million in Revenues)
Companies which have secured credit lines from either a bank, factor or other traditional lending institution, may occasionally need additional financing beyond their current credit lines, or they have been charged back for past-due accounts, or they would like to reserve their line for other uses. The TAD ProgramT works for these companies as follows:
ú Financing accounts, which have been charged back by the bank or factor.
ú No liens, UCC filings or minimum volume commitments.
ú Turn slow paying customers into timely accounts.
ú Enter new markets by offering longer terms than competitors.
Large Companies ($30 Million to $Billions in Revenues)
Recently, ACRT has gained a Fortune 500 client who is using the TAD Program as a collection tool. ACRT's management believes that TADs offer large companies an alternative to collection agencies. The TAD ProgramT offers a company a unique way to handle troubled and/or marginal accounts by:
ú Dramatically reducing aging.
ú Customers can honor past-due obligations in monthly installments.
ú Turn slow paying customers into timely accounts.
ú Avoid costly collection agencies.
ú Preserve relationships.
Originally, management estimated the market for its TAD ProgramT to be $20-$40 billion for small to medium-sized companies. Now its market niche has grown to include the largest companies in the US. Since ACRT has just begun marketing to large companies and the sales cycle takes longer, management does not yet know how much sales can be expected from this market. Jon Viberg, the account executive in the Chicago office who has previously specialized in accounts receivable management for large companies, estimates one-half to five percent of large companies' accounts receivables are past 60 days, so the potential market is probably in the billions of dollars. A large customer will-as has been the case so far-test the TAD ProgramT in a small way with one division and then introduce the Program to the whole company.
Handling past due accounts is a costly burden for large companies. According to a recent survey by a division of the Commercial Law League of America, in 1995 collection agencies handled a record $3.9 billion worth of delinquent accounts. That represented a 15% jump from 1994 and the 10th consecutive quarter of increase in collection agencies' business. This is a sign that corporate clients are struggling to collect and/or are willing to out-source the collection of outstanding accounts receivables. The TAD ProgramT offers credit managers an automatic way to segment troubled accounts and reduce collection staff.
One of ACRT's Fortune 500 customers includes TADs with all letters sent to past-due accounts. The letter informs the client that the account is past due and credit terms cannot be extended; however, if the client wishes to pay with up to 180 days, then the letter asks the client to please sign the TADs for the total amount and return. If the client signs the TADs, then the credit manager has received payment, the aged receivable is extinguished and his Company only pays the processing fee because the client would pay the monthly fees. If the client does not sign and does not send immediate payment, then the credit manager has been given a clear indication that more serious follow-up is needed. The TAD ProgramT allows the credit manager a way to eliminate repeated phone calls and letters because the process is automatic. Also, the credit manager can preserve customer relationships by offering his late-paying or marginal customers an attractive alternative to immediate payment.
The Individual Benefits of the TAD ProgramT Compared to Banks and Factors
Table 1 compares the individual benefits of the Program to more traditional financing methods for accounts receivable.
INDIVIDUAL BENEFITS The TAD
ProgramT Banks Factors
Finance Can be financed in addition to other credit lines Yes N/A NO
Percentage Paid Per Invoice for Accounts Receivable Financing 75% 50-75% 50-80%
Credit Protection Protecting Sales Against Non-Payment Yes NO NO
Collection Direct Collection from Buyer's Bank Account Yes NO NO
Legal Enhances Legal Status Yes NO NO
Marketing Can be Used as a Sales Tool Yes NO NO
REQUIREMENTS & CHARGES The TAD ProgramT Banks Factors
Verification of Financial Strength Not needed Mandatory Mandatory
Financial Statement Not needed Audited
Asset Liens None Various All receivables
Minimum Monthly Fee None None $1500 or more
Finance All Receivables Not needed Optional Mandatory
Sales Growth
Management is pleased with the market's interest in TADS. Currently (May 1997), approximately 20% of sales growth is from established customers, 30% from customer referrals and 30% from new business. With the rapid addition of the sales force and with improved marketing the percentage of sales growth from new customers will increase. The average individual TAD amount has increased to an average $20,000 and total transaction size has risen to $60,000. This results from larger customers using the TAD ProgramT as well as established customers having more confidence in using TADs.
Each new sales executive is expected to reach a quota of 20 customers generating $250,000 in TAD revenue or $5 million. Experienced salesmen like Jacques Munro are generating revenues in excess of $10 a year. One to three months is the length of the training program before each executive is assigned to a two-person sales team. My estimates in my March 5, 1997 research report--to allow for delay and unforeseen problems--for FY 1998 assume that management only hires four salesmen instead of eight and that these sales executives only produce at 60% of quota for their first year. As of May 1997, Actrade hired four new sales reps, some of whom are already generating revenues. Estimates for FY 1999 include eight salesmen added for a total sales force of thirteen account executives each producing $10 million each. These estimates do not include any probable additional sale executives being added nor increase in sales quota for each sale executive. Also, no sales projections are made for ACRT's large customers. The sales potential is much greater than my estimates, but ACRT's marketing history is too early to make long-term estimates.
Management believes that the future of the Company is in growing its TAD ProgramT nation-wide. To accomplish this, management is focused on hiring the right people and building the infrastructure necessary to properly serve its customers.
Michael Membrado, the vice-president of Operations is responsible for developing a national broker network. He will recruit, train and hire staff to service brokers who refer TAD business to Actrade. Even though management will continue to open regional offices, each office costs about $100,000 a year to operate and, based on Actrade's recent experience with the Chicago office, it takes about 6 months before that office will produce revenues. As part of Actrade's strategy to roll out the TAD Program nationally, management will place a dedicated effort to building its broker program. Brokers are a low-cost way to gain distribution, and the TAD Program is a unique, complimentary product for cash flow brokers who sell asset based lending or factoring services.
Sales Department Development Plan
Actrade plans to hire new Account Executives on a regular basis depending upon the quality of the applicants and the ability of Actrade's operational and sales staff to train and develop them. Also, a sales manager is being recruited to help manage recruitment and training.
Presently, Actrade has 3 regional area managers (NY, Chicago and Salt Lake City) who are also Senior Account Executives. There are two more A/Es who have been with the Company for over a year and they are generating at a run rate of $5 million a year. In total, Actrade now has 9 A/Es and will be seeking to hire more. The sales quota is $5 million a year within 15 months which includes a 3 month training period.
Senior A/E will probably be generating revenues in the $8 to $12 million range per year after the first six months.
Each A/E trainee after a 3 to 6 month training program joins a profit center and becomes a Junior A/E. They are under the supervision of the Senior A/E(s) of that profit center. As part of the profit center, they are accountable for their own expenses, and expected to increase the profitability of the profit center. These Junior A/Es receive a base salary and participation fees generated by accounts they bring in.
If successful, Junior A/E could become Senior Account Executives. These Senior A/Es are expected to be major producers for their respective profit centers. They also manage and help train Junior A/Es. Finally, They manage the profitability of their profit centers. Senior A/Es are rewarded with a compensation package which includes not only base salary and commission, but also a year end bonus, payable in a combination of cash and warrants, tied to the profitability of their respective Profit Center. |
