Creating value through cash savings.

• Author: Vendig, Richard E.
• Position: Corporate Trade - Related article: Considering a Corporate Trade Transaction? Key Factors For Review

Amid political uncertainty, a turbulent economy and continually waning consumer confidence, virtually every industry -- from travel and real estate to advertising and retail -- has faced a gloomy big picture. And, with sales generally down across the board, top management is turning to traditional strategies to generate cash: slashing overhead, accelerating billing, delaying payments to vendors or some combinations thereof.

Companies are also turning to liquidation or discounting to rid their shelves and warehouses of under-performing assets and to avoid the possibility of losing even more revenue. As companies introduce new products and sometimes overestimate demand, technology becomes outdated or changes in the marketplace affect the value of real estate and capital goods, companies may inadvertently dispose of these under-performing assets at 15 percent or 20 percent of original value. While simply discounting or liquidating has proven to be a quick fix, senior financial executives are now realizing that creating incremental value from these assets far in excess of the liquidation or discount amount is now essential for future sustainability and growth.

A less traditional strategy for resolving the pain caused by these under-performing assets or excess inventory is through corporate trade, a process that may recover up to 100 percent of original value through the creation of future cash savings.

The International Reciprocal Trade Association (IRTA) states that each year more than $7.5 billion in sales is transacted through the corporate trade industry. This figure is growing at an estimated rate of 8 percent faster than the GNP's rate of growth, and can be attributed to a number of factors, including the existence of surplus inventory, falling sales, unproductive assets and excess capacity. IRTA estimates that 300,000 companies will turn to corporate trade as a financial alternative this year alone.

Corporate trade is typically utilized to lower future cash expenditures or expand media expenditures without an incremental cash outlay. It is a flexible concept not tied to a particular industry, product class or asset category. Corporate trade may easily be applied across any business that regularly advertises, purchases printing, travel related products, sponsorships and other goods and services offered by the trading company.

Corporate trade has been in use for about 40 years in one form or another. Many Fortune 500 companies today...