I don’t have an excess inventory problem. Is Corporate Trade right for me?
The answer is yes, you can use Corporate Trade without an excess inventory problem, so long as you have an annual advertising budget of $500,000 and up.This is a common question I run into with customers, so today’s blog focuses on the subject of Bartering without inventory. Caveat: if you’re not yet familiar with Corporate Trade, I recommend you read the following blog post, and watch this video to get a basic understanding.
For those that know Corporate Trade (also known as Corporate Barter), you’re likely most acquainted with the standard Corporate Trade transaction structure:
- Company A trades a certain quantity of distressed or excess inventory in exchange for a credit, worth about 3 times more than the current fair market value of the inventory.
- The credit is used over time to purchase advertising space planned by their agency
- The money saved on that advertising expense (thanks to the credit) can now potentially become cash flow, depending on how it's accounted for.
Sometimes, a company may have a keen interest in reducing their marketing expenses with Trade Credits, but don’t currently have "problem inventory" or an asset depreciating in value.
Example: For a seasonal consumer brand manufacturer, excess inventory tends to become problematic around the holidays where order volume is higher, and perhaps a little more unpredictable. As a result, the margin of error along their supply chain is much smaller.
With that in mind, how can a business use Corporate Trade without inventory to trade in?
Solution 1: Pay Later Model
Rather than waiting for a problem asset to surface, the company immediately teams up their agency with a Corporate Trade company to immediately buy a portion of their media using Trade Credits.
Later, when a supply issue does arise during normal course of business, the company pays back the Corporate Trade company at a later date with inventory at wholesale value (even though the inventory may have depreciated and only be worth a third of that). In this circumstance, the write-off has already been recuperated in advance.
Benefits to the Pay Later method of Corporate Barter?
It’s a proactive risk management approach.
Why wait for an inventory hangover problem to surface before finding a solution? This strategy empowers companies to take advantage of the financial benefits of Corporate Trade immeidately.
Understanding that eventually all businesses are faced with depreciating assets, the stress experienced between sales, supply chain and finance is substantially lessened when there is already a trusted solution in place for excess inventory and asset obstacle that are bound to occur during the normal course of business.
It’s a trial run for the risk adverse.
Corporate barter is a high trust transaction –most asset transactions are worth hundreds of thousands if not millions on the books. And those executives who are new to the model naturally proceed with healthy caution.
Before making a long-term investment, this approach lets a Corporation try the Corporate Trade out first, and have them prove their work. The flexibility of testing as small or as large a scale as you choose allows your business to gauge the usefulness of the Trade Credit before engaging in a huge inventory transaction up front.
It’s like having a cell phone deal where you get the rates and service of a long-term contract, without the actual commitment of a long-term contract.
Solution 2: Reciprocal Purchasing
Another way to use the Corporate Barter model without trading inventory at all, is through a Reciprocal Purchase. This partnership structure is ideal for companies without major excess inventory problems, or for service companies that do not carry inventory at all.
In this reciprocal purchase scenario, a business once again teams their agency up with the Corporate Trade company to buy a portion of their pre-planned media, using their contracted rates and media plan.
In return, the Corporate Trade provider purchases a pre-determined portion of the company’s product or services at wholesale value. The Corporate Trade provider then re-markets the product, following your re-sale guidelines and restrictions.
Benefits of the Reciprocal Purchase method?
Work your media dollars harder.
If you are considering Corporate Trade as a solution, you have significant annual media expenditures. Why not use those dollars as leverage and make them work harder for you?
Reduce advertising expenses.
Although the cost of your media remains the same, your cash outlay on that expense is 10-15% lower because a portion of it is paid for with a Trade Credit.
Drive incremental tier 1 product sales.
This model offers up another way in which to drive incremental tier 1 product sales, all by buying the same media space that you normally would have otherwise.
Looking at the Barter model differently opens up a world of possibilities to drive bottom line results.
If you’re wondering if Corporate Trade is right for your business, I recommend our eBook featuring a complete library of answers to some of the most common questions about Corproate Trade.
Until next time, Scott Miles.
Client Relationship Associate