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Bob Meyer

Beyond The Limits Of Cash or Credit

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(Reprinted from BarterNews issue #36, 1996.)

"We are all challenged to make the best use of our resources so that our companies can thrive and play the important role on the domestic or international stages we believe they can."

-Arthur Wagner, President, Active International

I want to thank everyone for attending this important and, hopefully, profitable panel discussion. For the past few days everybody has been focusing on the issue of investment recovery, or how they can get a stronger yield from some of their capital investments.

That issue, as you know, is critical not just for those individuals in the oil and gas industry, or chemicals and pharmaceuticals, or power companies, or telecommunications, or forestry, or consumer products.

Investment recovery is critical in virtually every industry. We are all challenged to make the best use of our resources so that our companies can thrive and play the important role on the domestic or international stages we believe they can.

One of the more frightening things about business is that our investments may only have a single life-span. That is to say that when the usefulness of products, services or the materials and assets used to create our products have gone through their life cycles, they no longer have the opportunity to help the bottom line.

When they can no longer help the bottom line, they must be retired, mothballed, written down, liquidated or otherwise rendered a burden. That is not only a frightening thought to us, but to our customers or rate-payers who will have to participate in that uselessness.

Large non or under-performing assets have the ability to stop or slow the growth we anticipated and planned for. At times, we can determine the time when an asset will stop performing. We can take some of the sting out of that by building in obsolescence into our forecasting. We may have to watch our bottom line get shakier, but at least we know it's coming.

Other times, an asset becomes non-performing at a time when we don't expect it. The cost of an unforeseen repair being so high that it may make little sense to undertake it. Real estate that falls below market value at the time we had anticipated selling it. The cost of waste disposal jumping due to new regulations regarding disposal. Computers reaching the point of no return because of an increase in the size of our company, and the on-line requirements to make a new network advantageous or necessary.

Remember, regardless of the reason why an asset is no longer useful, its lack of performance will affect our business. The challenge then, is to make those assets perform for us once again. Can something that once had a useful and profit-making life return to that role and contribute to the bottom instead of taking away from it? I'm happy to say that the answer is a clear and resounding yes.

Today, there are mechanisms in place to profit from your assets a second time. The corporate barter industry, of which my company (Active International) is a part, is helping large non or under-performing assets provide profit for their owners. How? By trading these assets for other, very important and useful goods or services.

You can trade your assets, which traditionally brought little through liquidation, write-downs or markdowns, to a corporate barter or trading company, which can provide you with up to full wholesale or market value, in the form of a trade credit.

That credit can then be used to acquire a variety of opportunities including electronic or print advertising, and or goods and services necessary to operate your business. In terms of media, it is in the form of a client's normal media plan, submitted by the agency. In actuality, the process is simple, the agency submits the media plan, including traditional costs, and the barter company implements it. The only difference is that your under-performing or non-performing assets are used to pay for it.

The same holds true for goods and services. Here again, the client indicates which goods and services it requires, including such things as printing, computers, travel, telecommunications services and much, much more...and the barter company will provide it. Once more, the only difference is that your under-performing asset is being used to help pay for it.

What becomes of the asset? When possible, the barter company will remarket it through liquidation channels if it has any resale value. In the case of real estate it can sell it through its channels, or can even lease it back to the client if it still has some use to that client.

This gives the client the opportunity to avoid taking a significant or otherwise serious loss on the asset, and receive full wholesale or market value for it.

My company has great success in dealing with large non or under-performing assets. Here are a couple of examples of what has been possible.

A large company owned a teleflorist company that was no longer performing up to expectations. The company sold 69% in convertible debt to Active International, which paid for it in the form of a trade credit against media. Now, the company also had several divisions and other companies in other parts of the world.

Since Active is currently acquiring media in 35 markets around the world, the parent company was able to utilize the credit for media purchases its other companies and divisions needed to make. They recorded a full sale and conserved a significant amount of the cash they would have ordinarily expended on the media purchases.

In another instance, a very large international insurance company was able to dispose of under-performing loans and REO assets at full book (or marked to market) value. The trade credits they received allowed them to reduce their core business marketing expenses by 20%.

Another time, an international credit card issuer received full debt value for aged credit card receivables in the form of trade credits, while reducing their marketing cash expenses by 15%.

Finally, a national consumer goods manufacturer received 100% of book value against real estate sales which otherwise would have resulted in a 75% loss.

You can see that when deftly used, a corporate barter company is actually a financial services company. Through trading your under or non-performing assets, which were destined to result in serious losses or write-downs, you can finance a number of other programs, such as media or a host of other goods and services.

But I don't wish to limit the size of our playing field here by suggesting its only your large assets that can be traded in order to finance other purchases. It's also the products and services that your companies produce or provide on the front end.

Some barter companies, and Active is one, are prepared to acquire such products as natural gas, shipping rights, forestry and paper products, chemicals and industrial components (and more) in exchange for the same trade credit.

We will then remarket those products through channels you don't currently possess or through distribution chains you aren't currently part of. In fact, our clients set forth where we are permitted to remarket their products and to whom. The barter company will contractually agree to sell to only those buyers you agree to.

Active has also been successful at creating trading programs that are also linked to our clients' vendors. This allows our clients to utilize our trade credits when paying their own suppliers for the raw materials or other products and services they need to run their businesses.

We have instituted an industry-first program that calls for those credits linked to vendors to be insured, thus guaranteeing their value. This makes your vendors secure in accepting Active's trade credits as part of the payment you make to them.

We are insuring these credits through major insurance providers; and because they are guaranteed the holder may book those credits as payment when they are received, as opposed to when they are used, which is the traditional barter accounting method.

This gives you, the client, an enormous leverage with your suppliers. You can agree to a longer contract period with your supplier, for example, if they are willing to accept these guaranteed credits as part of your payment. If not, there are likely to be other suppliers who will. Insured trade credits can be of enormous help in negotiating the best terms you can.

So you see, corporate barter can provide you with many more options than you originally thought. As deregulation becomes the way of the world, we anticipate in a few years being able to acquire excess capacity of electricity providers and wheel that electricity to clients far outside the service territory. That will give the utility latitude on days other than peak. The same goes for natural gas. We will acquire and move gas during summer months when there is adequate pipeline space.

The corporate barter industry in the next four years leading up to the year 2000 will look very different from the companies a few years ago. Today, the barter industry exceeds $7.5 billion in revenues. I'm happy to say that my company already exceeds $500 million in yearly revenues.

The services corporate barter companies provide will continue to expand, and will offer clients so many more options. Not only for assets that are not performing or performing under expectations, but as front end components of your marketing plans. That's not just in North America, but globally. At present, we have ten offices in nine countries so that we may link a client's problem with a worldwide solution, if necessary.

We suggest you see barter as a guarantee for the sell-through of your products, and maximize the benefits you receive from operating at full capacity. The barter industry will acquire what you can't sell, or what's been used up, or what no longer has a useful life.

By looking at corporate barter as opportunity for profit, you can not only recover the investments you've made but can move profitably into the next century.

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