Repost:
Subject: ACRT about to move to new highs
| Previous | Next | Respond | Show Navigation
You have 1 unread message
To: "Z man" (1218 )
From: John Chew
Monday, Jan 26 1998 7:51AM EST
Reply # of 3879
Marketing the TAD Program. JC Notes from May 1997. This does not include
changes and new products. Just for background info.
The future potential of the TAD Program is based on the following:
1. The increasing demand of American companies to improve their cash flows and
sales is expected to help expand the TAD Program
2. A Dun and Bradstreet report estimates that one part of Capital's market, small
business ($1 - $15 million revenues) is in excess of 200,000 companies with combined
revenues of over $20 billion. The small to medium-sized companies are currently
Capital's fastest growing customer base.
3. Recently, Capital has learned that the collection and extended sales payment terms
are attractive to large companies. As a conservative estimate, the market potential is at
least all accounts receivable over 60 days for these Fortune 500 companies. This is an
untapped market that Actrade intends to aggressively pursue.
4. Import TADs have generated $400,000 in revenues in the Third Quarter of 1997
(Belgium exporter to U.S. Company). This market is also large and untapped. Import
TADs would offer an alternative between the most secure form of trade financing,
Letters of Credit, and the least secure method, Open Account.
Overcoming Resistance to The TAD Program From Potential Customers (Source:
Actrade Account Executive Book and interviews with Capital's sales-force and
customers)
Actrade targets its sales approach to the varying needs of clients who have different
uses of TADS as described in the section "Who Uses Trade Accepatances." Even so,
resistance from some potential customers can be anticipated.
"It costs too much"
In comparison to bank financing, The TAD Program is more costly. The Account
Executive (A/E) can stress the following points in response:
1. TADs are only for specific instances where the deal would not have been closed
otherwise, or for accommodating marginal accounts which are more costly and/or risky
to maintain.
For example, one of Capital's customers (a clothing importer) requires its clients to
either
pay COD or with TADs thereby eliminating the need for collection and an accounts
receivable department.
2. The processing fee (usually 2.5%) is not the financing fee. Use of the TADs allows
the Seller to minimize the risk involved with open accounts and, when available,
provides the Seller with credit protection on those accounts which otherwise would be
turned away. The financing fee is actually 1% per month on installments, (in simple
interest this comes to 12% to 18% annually, depending upon how one calculates. By
separating the fees as such, one is more inclined to pay the higher rates knowing the
risk is greater.
3. The TAD Program acts as four tools in one, financing, collection, sales and credit
protection. Most financing options address one or two of these at most. The customer
has a flexible tool that is used only for certain customers and situations.
"My customer will never sign"
1. Many Buyers will not sign if the TAD Program is presented to them as an ultimate
way of doing business. However, if presented as an alternative payment option as
opposed to the ordinary 30 days, many Buyers will embrace the Program and will not
go back to doing business any other way.
For example, a toy merchant supplier who is in a seasonal business (Buyer) can reduce
cash
flow strains by having extended terms to pay.
2. The TAD Program is based on a cooperative effort between Sellers and Buyers.
Some Buyers may not need terms, or may be conservative. The job of the Account
Executive is to teach the seller when the Program is applicable. Account Executives
report that The TAD Program is not sold. The A/E wins the trust and confidence of the
Seller by learning first what the customer needs are and then, if appropriate, shows
how the TADs could benefit the Seller's business in certain circumstances. Educating
customers in the use of this new business tool is the main job of the A/E.
"I don't want to ruin a relationship by asking my customer to sign."
This is another legitimate concern of many Sellers who feel that by asking their
customers to sign, they will offend their Buyers rather than make them feel more
comfortable. After all, why turn an open account customer into a TAD customer?
Many A/Es suggest having the Seller test the Program with either a new customer or
with a marginal customer and developing the relationship from there. Even if a good
customer pays on time, there may be times in his/her business when having extended
payment terms is attractive.
"Are you big enough to purchase a large volume of TADs from us in the future?"
One large client, Graybar, was initially concerned if Capital would have enough money
to purchase TADs generated by their sales staff. They asked if Actrade could make
good on the 25% reserve. Actrade's A/E answered by saying that Actrade's credit
facility was virtually unlimited because Actrade can post TADs as collateral against its
bank line.
Marketing to the Buyer
One of the challenges in selling the TAD Program is getting the Buyers to cooperate.
Below are some selling points to the buyers:
ú Unsecured line of credit in addition to existing lines.
ú No liens or UCC filings.
ú Hold on to working capital longer (especially in a high gross margin business).
ú Get much needed extended payment terms without severing relationships with
suppliers.
ú Increase inventory.
ú Take on larger orders than would be otherwise feasible.
ú Honor past-due obligations on installments.
The Buyer is giving up open account terms for an extended payment option.
Sometimes the Buyer will sign a TAD to help finance the Seller. This can occur when a
well-financed Buyer, typically a large company, needs a specialized product or service
from a less capitalized supplier.
Other Frequently Asked Questions
"How is the TAD Program different from factoring?"
Factors buy receivables while TADs replace them. The results are that the risk is
minimized, allowing Actrade to finance situation which otherwise would not be
financed; there are no liens or U.C.C. filings and there are no minimums or annual fees.
TADs are used on a case-by-case basis whereas factoring is typically viewed as an
all-encompassing solution to cash flow problems. TADs have many more applications
and, in fact, can complement many factoring arrangements. Not being tied to a factor is
a big selling point with some Sellers.
"What if the client has existing asset-based credit lines or factoring agreements?"
Participation in the TAD Program does not interfere with traditional credit facilities or
factoring agreements. This is true because the TADs are actually instruments of
payment and thereby have no impact on the balance sheet. TADs are negotiable
instruments and are sold to Actrade as would inventory in the regular course of doing
business. The TAD Program is in fact ideal for those accounts which are charged-back
to the client, or for accounts which require longer terms than typical asset-based credit
agreements will allow.
"What if the customer defaults?"
Past trends have pointed to a default rate of less than 1 percent (actual rate is 0.11%).
This low default rate can be attributed to the strength of the collection instrument as
well as its legal attributes. However, in the cases of non-payment, Actrade works with
the customer to restructure the payment schedule. This means the customer will issue
new trade acceptances to Actrade, usually in weekly installments over an extended
period of time. In cases in which Actrade has secured credit protection, the client only
takes on a 20% co-insurance risk. This means that the initial advance given to the client
by Actrade upon purchase of trade acceptances does not have to be returned. In
cases in which credit protection is not available, trade acceptances are purchased with
full recourse to the seller.
"What is the minimum TAD amount?"
There is no minimum TAD amount or transaction amount or number of transactions.
The TAD ProgramT is planned to solve specific problems associated with the
management and the collection of accounts receivable. Most first-time TAD users test
the Program using a small amount so that they may learn exactly how the Program
works.
"What is the maximum TAD amount that Actrade can handle?"
Actrade does not have maximum TAD amounts.
"Can TADs be used for international transactions?"
TADs are for domestic use only. However, Import TADs for foreign sellers to a US
Buyer have recently been offered to U.S. clients and foreign sellers. Export TADs are
currently being developed. In the past, international transactions were financed
sporadically as an added service for Actrade's clients, in which cases the traditional bill
of exchange or letter of credit was used.
"You're a collection agency"
No. The TAD serves as a very effective collection tool but that is not its primary
function. Its primary purpose is to allow the Sellers to extend terms to their customers
while simultaneously strengthening cash flow.
"Are the fees negotiable?"
In general, the fees are as stated:
Processing fee (based on volume; includes collection)......... 1.5-2.5%
Credit Protection Fee..................... 1.0%
Discount Rate
Monthly Installment TADs, per month..................1.0%
Single TADs, per month.......................1.5%
Participation Fee for first time customers. ..............$500.00
Return Fee, per TAD.......................$25.00
Pulling TAD Fee, per incident..................$50.00
Default Fees, per month................1.5% of TAD face value
Change of Date.............2.5% of TAD face value + default fees
Note that while the discount rate for installment TADs is one percent (1.0%) per
month, when calculated on the declining balance, the effective rate becomes one and
one-half percent (1.5%) per month.
Upon purchase of TADs from the Customer, Actrade will advance up to 75% of the
face value of the trade acceptances. The remaining 25% is remitted to the seller 7-14
days after the Trade Acceptances clear. Actrade usually remits the funds within 3 to 4
days after clearing.
TADs are used in special cases only, where the fee is less important than the actual
transaction.
"What if the client does not want to sell the TAD to Actrade?"
The client is under no obligation to sell the TAD to Actrade (and Actrade is under no
obligation to purchase the TAD). If the client chooses to hold on to the TAD, it may be
presented to the bank for collection on its due date, however, collection will be done
through the traditional channels. This increases the chances of non-payment since the
amount will not be automatically deducted from the customer's bank account.
"Will only financially weak customers want to sign"
Actrade would not accept a TAD from a Buyer who would be a risk to not be able to
pay. It is a misconception that the Buyers who would like to use the TAD have poor
credit. Buyers usually have good credit but need more time to pay in certain
circumstances. In the shoe retailing, construction and printing industry, Actrade's clients
have slow payers who need longer terms to pay because of the length of time for them
to be paid.
A factor would often charge back any account receivable that is slow paying to the
Seller. The TAD eliminates this expense to the Seller while preserving the relationship
between Buyer & Seller.
| Previous | Next | Respond |
View SubjectMarks
Bookmark this Subject
Quotes - Chart - News - Discussion - Return to Five Dollars and Under
ACTRADE INTL LTD (NASDAQ: ACRT)
Time: 3:58PM
Last Trade
13 00
Change
- 3/8 (-2.80%)
Bid
12 15/16
Ask
13 00
Volume
0257,2000
Prev.Close
13 3/8
Open
13 3/8
Day Range
12 3/4 - 13 3/8
Last Tick
0Up0
Avg.Volume
0402,0000
One or more words separated by spaces:
Subject Titles Only
Full-Text
Messages with Links
Send questions and feedback to webmistress@techstocks.com
Terms of Use |
