Alternative financing eases cash flow

Companies who purchase goods or services, either for resale or as raw materials, may require financing to either take advantage of a specific business opportunity or to more efficiently manage their cash flow.

For an increasing number of companies, Actrade Capital Inc.’s Trade Acceptance Draft (TAD) Program provides a quick, clean, and very cost effective alternative to traditional forms of trade financing.

Trade Acceptance Drafts were once common early in the 20th century. Actrade has revived and improved this method of payment by introducing electronic processing, which clears the trade acceptance drafts similar to the manner in which a cheque clears the banking system. This patented process was introduced to the business community in 1993 as the TAD Program. The TAD Program has gained recognition as a powerful alternative to the traditional “cash” or “open account” methods typically used in commercial transactions.

WHAT IS A TAD?

Simply put, a TAD is a pre-authorized payment draft that is processed like a cheque. It is made payable to a supplier of goods or services against a specific invoice or group of invoices. The TAD is signed by the buyer and dated with a due date at some point in the future. Each TAD is then sold to Actrade on a non-recourse basis, thus providing the supplier with immediate cash without incurring any liability or contingent liability.

The TAD Program satisfies the needs of both buyers and suppliers involved in specific business-to-business transactions for goods or services. It gives suppliers the opportunity to consummate sales on a COD basis while providing to their customers the payment terms they require. As a consequence, suppliers can reduce or eliminate collection costs, gain credit protection, and open up new credit facilities for their customers to use for further purchases.

For the buyers, the TAD Program offers them the terms they require to pay for the goods or services purchased. This financing is offered on an unsecured basis, for terms of up to six monthly installments. The buyer now has the ability to match cash outflows and inflows, as well as increase their purchasing power by utilizing this new facility to augment existing credit lines.

MANUFACTURERS CAN MANAGE CASH FLOW

Here is an example of how the TAD Program can help manufacturing companies more effectively manage cash flow. These companies may need to purchase large amounts of raw materials from their suppliers to produce their finished goods. Because of the lead-time required in the manufacturing process, and the need to keep an inventory of raw materials on hand, cash management becomes crucial.

Here is where the TAD Program steps in.

A purchaser (buyer) of raw materials can receive a revolving TAD facility from Actrade Capital Canada, Inc. (Toronto). The company can sign one or a series of TADs, dated every 30 days, and use them to pay the supplier for the raw materials. Actrade will then purchase the TADs from the supplier in exchange for immediate payment. Actrade then collects from the buyer’s bank on the due date of each TAD.

The end result? The supplier converts sales to immediate cash, eliminating credit and collection risk (Actrade assumes collection responsibility). The buyer strengthens its relationship with the supplier by remitting immediate full payment and is able to retain working capital to fuel growth and increase buying power.

Soon, Actrade will introduce an electronic trade acceptance draft (ETAD) that will bring all of the benefits of the TAD Program online. This will allow companies buying and selling on-line to satisfy all the concerns of conducting business on the Internet (security, credit, collection, and financing) while offering the proven benefits of the standard TAD Program.

Text provided by Actrade Capital, Inc., headquartered in Somerset, New Jersey. For more information, visit www.actrade.com., or contact Gary Massingham at Actrade Capital Canada Inc. (tel: 416/203-0424, or e-mail: garymassingham@actrade.com).

HOW IT WORKS

1. Buyer tenders TADs to supplier as full payment for goods or services rendered.

2. Actrade purchases TADs from supplier in exchange for immediate full payment

3. Actrade collects from buyer’s bank on the due date, similar to the way an ordinary cheque is processed.