How to Achieve Significantly Higher Value for Problematic Corporate
Regardless of how well we run our companies, at some
point we are bound to have an asset that has become a drain on the balance
Anything tangible that is controlled to produce value and that is held to have
positive economic benefit is
considered an asset. Simply stated, assets represent value of ownership that
can be converted into cash (or
some form of currency).
For most retailers and direct marketers, one of the
largest assets is inventory which can quickly become a liability if it can
no longer generate the originally targeted full wholesale/full margin price
point due to a wide array of market conditions. Assets can also be anything
from used capital equipment to unneeded corporate jets to below water leases
that become problematic when they need to be sold and the cash market value
is significantly below book value resulting in negative accounting issues
such as write offs and reserves .
When addressing these categories of problematic
assets/inventories companies go through the usual methods of sales;
markdowns, sale discounts etc. until the remaining asset has reached the
point where cash sales results in below cost returns. At that point, most
companies take the undesirable route of cash liquidation which generally
results in negative impact to the company’s Profit and Loss statement.
Alternatively, there is a strategy that allows
companies to achieve 3-4 times the cash liquidation model and employ a tool
that will further allow them to reduce the amount of cash needed to pay for
logistics and other competitively purchased goods and services. That
strategy is corporate barter or sometimes referred to as Corporate Trade and
involves the issuance of multi-lateral, commercial Trade Credit in place of
the much lower value cash liquidation pricing.
Previously, higher value trade solution options for
direct marketers and retailers have been limited to Media/Advertising usage
which may or may not have been relevant or of practical interest to either
the retailer or the direct marketer. Recently however, innovative new Trade
companies have partnered with key non Media suppliers to offer more varied
areas for Trade usage which allows for broader opportunities and more
efficient trade monetization.
What is Corporate Barter?
Corporate Barter is the exchange of goods and
services for problematic corporate assets on a non-cash basis through the
use of commercial trade credits (TC) in an effort to achieve much higher
values and reduced cash needs.
Why choose a corporate barter strategy?
Companies use barter for four main reasons:
They achieve much
higher value when compared to cash liquidation options.
of the problem assets are protected by moving them into non–competing
suppliers agree to accept Trade Credit in place of the normally required
cash, cash flow improves as less cash is needed to pay for goods and
taking action rather than hoping that values will somehow improve, costly
and unnecessary carrying costs are eliminated for non-performing assets.
are the Benefits of Trading (Barter) as opposed to cash liquidation?
value for problem assets of all types: typically 3-4 times the cash
liquidation market value.
assets are contractually agreed to be redistributed into non-competing
The sale is immediate;
no “cherry picking” of higher value portions of the problem inventory. Trade
Credit is immediately available for use upon signing.
Cash requirements are
reduced through supplier’s willingness to accept Trade Credit in place of
are the characteristics of the Trade Credit?
$1 in Trade Credit is
always worth exactly $1 in cash.
All goods and services
are delivered at the client’s preferred commercial terms: Price, Service,
Delivery and Quality with approved and qualified suppliers.
trade credit is used in combination with cash to pay for planned and
provide a unique tool to further reduce cash needed in competitive
Actual Case Study of a National Food Company:
national food company introduced a new line
to extend its
brand reach. The
line was increased
in order to be able
to fill increased demand.
expectations and by
apparent there was an
to short code, “sell by dates”. This proceeded
to negatively impact the
value of the product because mainline
grocers were no
longer willing to purchase
shelf life issues thereby
forcing the food company to
market where values
25% of originally
planned wholesale pricing.
Considering all their
negative accounting issues of write downs
instead of selling
for heavily discounted
cash liquidation value,
traded the problem
its full wholesale
open purchase Trade
and willing to accept Trade Credits
as partial payment
to gain new
of raw materials
the Trade Credit program
further reducing the amount
of cash needed for the production of several
lines of product.
What is the Process for Identifying and
Utilization of a Barter Agreement?
restrictions, if any, on where the asset may be redistributed.
quantify areas for Trade Usage.
fide, non-qualified Purchase Offer; typically 3-4 times higher value than
Sell asset under
mutually agreed to remarketing plan.
Credit; improve cash flow through Trade Credit substitution for cash
and measure Trade usage plans.
Trade Credits typically have an expiration of 4
years from issuance; however the barter company, as part of step 3 above,
works to have the trade credits of the client utilized generally within a
12-18 month or sooner timeframe.
Why Do Suppliers or Potential Trade Partners
Accept Trade Credits?
A new supplier stands to GAIN
by meeting a prospect’s
needs and accepting Trade Credit in place of cash
as partial payment
The incumbent supplier RETAINS
competitive bids and helps to keep
out aggressive competition by
accepting trade credit and thus strengthens their relationship.
A supplier with a minimum volume can EXPAND the
and percentages of total available
business (e.g., a trade partner adds international logistics, where
previously they only handled domestic).
partners to further
or cutting margin.
Why denote Logistics Services as one option for trade credit usage?
logistics represents approximately 2-4% of revenue (outbound logistics,
sometimes higher) for retailers and direct marketers and ranks among the top
8 operational expenses. Whether you’re a
distributor or retailer, one or more of
the following apply
Receiving of raw materials for production
from suppliers to
Shipping from your distribution center to your
stores or between distribution centers
Innovative, specialized Trade companies have
(TC) into cash
Some of the
logistics services provided are:
and Air for both Import
FCL and LCL
It’s always understood that all required service levels and commercial terms
are agreed to in writing and in advance of any Trade agreements being
A Trade Credit (TC) strategy can positively address a number of bottom line
corporate issues when it comes to problem asset sales and provides companies
with a unique tool to improve returns avoid negative accounting issues and
improve cash flow with all outcomes determined in advance of any sale taking
Detailed case studies and additional background information for this paper
were supplied by Jim Parsons, Senior Vice President, Corporate Barter
Advisors, LLC with whom
George has strategic alliances to aid his clients in cost effective
inventory management solutions.
Contact us to determine if
Commercial Trade Credits can assist your business.