Do dealers ever sell a revenue strip from installment sales in order to facilitate cash flow?
Longacre
Posts: 16,717 ✭✭✭
Like any other business, cash seems to be king in the coin dealership world (after all, you can't feed your kids with an accrual). Not too many dealers advertise that you can pay for your purchases over time. Let's suppose that a dealer wants to attract more clients, and ones that might not have all of the cash on hand to make a large purchase, but would be willing to make a large purchase if they could pay over time. For example, if a coin is sold for $12,000, the dealer might agree to take $1,000 per month for 12 months.
The dealer needs the cash as soon as possible, though (again, although his kids think the coins are numismatic delicacies, they don't make for a nice meal). Do dealers ever enter into a revenue strip transaction with another dealer whereby the selling dealer (the one selling the coin to the client) sells the right to receive x% of the future funds from that sale to another dealer (the investing dealer) in exchange for cash up front? For example, the selling dealer gets $11,000 today from the investing dealer, and the investing dealer receives $12,000 in total over the course of the year. Does any dealer do this, or is there a market for such a thing (or are all dealers cash strapped and would not be interested in this type of "investment")?
Transactions like this are what I do all day long, and the ideal situation is getting cash up front, showing a gain for book purposes (makes the shareholders happy), but deferring the tax on the transaction for as long as humanly (and legally) possible (sort of miffs Uncle Sam). These things are common in the corporate setting, but I don't know if they have applicability in the small business/coin dealer setting.
The dealer needs the cash as soon as possible, though (again, although his kids think the coins are numismatic delicacies, they don't make for a nice meal). Do dealers ever enter into a revenue strip transaction with another dealer whereby the selling dealer (the one selling the coin to the client) sells the right to receive x% of the future funds from that sale to another dealer (the investing dealer) in exchange for cash up front? For example, the selling dealer gets $11,000 today from the investing dealer, and the investing dealer receives $12,000 in total over the course of the year. Does any dealer do this, or is there a market for such a thing (or are all dealers cash strapped and would not be interested in this type of "investment")?
Transactions like this are what I do all day long, and the ideal situation is getting cash up front, showing a gain for book purposes (makes the shareholders happy), but deferring the tax on the transaction for as long as humanly (and legally) possible (sort of miffs Uncle Sam). These things are common in the corporate setting, but I don't know if they have applicability in the small business/coin dealer setting.
Always took candy from strangers
Didn't wanna get me no trade
Never want to be like papa
Working for the boss every night and day
--"Happy", by the Rolling Stones (1972)
Didn't wanna get me no trade
Never want to be like papa
Working for the boss every night and day
--"Happy", by the Rolling Stones (1972)
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Comments
Probably, but as the investor I would be concerned about the credit worthiness of the dealer. And maybe that's why this market has never evolved. I know the credit manager of a major auction firm and he told tales about late pays, NSF, no pays and worse....all from dealers. I don't know names but he said they nationally known.
What you have described is a receivables sale rather than a revenue strip. As the Investing Dealer, I'd be concerned not with the credit worthiness of Selling Dealer, but of the client. That's whose credit risk you are assuming. This type of transaction likely would, at the least, need the coin to be offered as security.
I'm not sure how you end up with a tax deferral as the Selling Dealer has sold inventory and attendant receivable, and has the cash in hand.