THE PCT AND COMMISSION PAYMENTS
Educational Series SADI: Posted / Edited; January 24, 2020 :PCT Advice
The issues about commission payments has been grossly misunderstood and misinterpreted long before FTN Exporting came on the scene in 1988. Even wth the advice served to date in all our publication, we see PCT’s acting incorrectly in servicing such matters. This advice is presented in a different light found in our publications, in showing how commission payments are earned and served correctly on a closed deal. The payment of commission has become a very complex matter in the last 5 years because the business itself has become more complex. The trivial aspect of commission payments seen online being plied by ill informed intermediaries are simply that–trivial, unworkable and uncollectible. Our procedures and processes are continually being refined and tightened in where the basic starting aspect offered in our publications on this matter remains in place as an acceptable valid aspects. As the PCT advances on its own position it should apply to ‘step up’ and treat matters of commission payment more seriously and more intently if they intend to use SI’s often. If a PCT works alone with no assistance from ISS (Si’s) and string formed thereon, then the matter of commission payments is irrelevant because the PCT earns a ‘gross profit,’ not a commission payment. But the PCT needs to know about such matters because sometimes , an unavoidable or worthy deal will be presented by informed USCT traders acting as ISS wanting to form a string with a PCT who is able to head such a deal. So lets look at the aspect of a string and commission payments, explained in a simple way; assume the SMICE doctrine has much more. TRIBE Rules of Association (TRA) directive apply for payment of commission. TRA has been refined, with one more edit /update to apply, as we reduce the rules down to a basic premise.TRA will then be reviewed every five years instead of yearly from mid 2020. Once a PCT applies TRA on it correspondence, or indicates that it adheres to TRA, then all commission payment rates / processes follow TRA. The actual is actually made on the buy / sell differential. In this aspect, it is the price of goods obtained from supplier which dictates final gross profit rate. FTNX is recent year has simply cut this differential to below half, in where the greater portion is for the benefit of the end buyer. Gross profits and OPX are then worked out for this lesser rate. If you do not give an incentive ( a better than normal price) to end buyers, no sale can be expected. Our job is to secure great quantity or prices or both, this is what makes our position unique.
Lets first create a string with the PCT (like FTNX) heading the deal.
SUPPLIER-SI(Tom USA)-SI/P.A (Bill CAN)-FTNX AUSTRALIA (PCT)-SI(Jenny INDIA)-SI (SAM Sth Africa )-SI (Bob U.K) -SI( Hasan UAE) - END BUYER
The PCT closes the deal. The PCT has applied 6.0% gross on top the buy price of goods sold to he end buyer. Lets assume the value of goods sold is US$ 100.00 per MT FOB.The deal if for 36 revolving monthly shipments over 3 years. The gross profit therefore is US$ 6.00 per MT. The same kind of goods that can be seen online selling for US$ 108.00 per MT or more. So the incentive for the end buyer to ‘buy’ such goods is also very evident. The PCT now has two option in making ‘commission payments’ to those who assisted in the closing of the deal.
- The PCT may personally pay each string member their share of commission payments.
- The PCT may pay also lump sum to its P.A who in turn pays each string member their share as assessed by the P.A with support of the PCT
If the PCT has a long string and is busy the PCT may choose payment option (b) if a trusted P.A is involved. The P.A was involved in the above String. He is a long time trusted PCT P.A attached to the PCT (FTNX) for 8 years. In this case the PCT has no qualms to pay a lump sum to the P.A to distribute on behalf of the PCT, commission payments to all string members, as per each level of participation. This is an important aspect, because if the PCT like FTNX does not clear commission payment ‘off its books’ in a very timely, transparent and expressed manner it could face an income tax bill for the whole gross profit amount earned; meaning that each member is going to get much smaller share than first declared.The way payments are made is critical to this one issue. Taxation departments all over the world who are ‘assisting each other’ in matters of due diligence and information, is increasing yearly.
What most string member don’t clearly understand is that the PCT is closing the deal because he or she has attained such a skill to be able to do so, where ‘informed’ USCT endorsed string members conjoined to the PCT are still tying to do as much. The PCT is also bearing all legal responsibilities of the deal and consequences therein which may include the below described added ‘operational’ expenses/losses (OPX) on top of commission payments that need to be made later. Further more the ISS in an active string are paid for work done, once a deal is closed under contract, while the PCT heading the deal as Principal has to remain with the deal until the final delivery years later. US$ 6.00 gross profit margin will attract deductions that will need to apply as each delivery takes place; such as-
- A LDD for i.e : $2.00 per MT is payable on every late delivery, which will be claimed more often than not , even if a P.G is not supporting such
- Currency fluctuation has at times will rise higher than when the deal was established at an average of 50 cent per MT which shed from the anticipated gross profit margin.
- To close the deal the PCT has offered the end buyers a rebate of $ 1.00 per MT per month, if the end buyers accepts each delivery without protest or ; pay the supplier a rebate for each delivery ‘made on time.’
- Added expense of using a DLC and the bank charges or; out of pocket expenses I.e: to pay one of its SI to be at port to supervise loading on behalf of the PCT every month. etc.etc.
- FTNX ©Humano charges paid to a disclosed charity as extracted from such gross earning by the PCT on behalf of all string members.( This is the fee applied by the PCT for serving advice and protecting the deals for others)
- Commission payment as net payable to each string member participating in the deal. Once all expenses are paid out what is left is for the benefit of the PCT.
So from the anticipated US$ 6.00 per MT, the PCT is entitled keep ‘up to’ 60% of such gross profits (US$ 3.60 per MT) to ensure all of the above operational expenses are covered and to ensure his share of net profits are apparent. Lets assume the total expense for the PCT will average about to $3.20 per MT per month plus 40 cent from the deal itself for the benefit of the PCT. The PCT does not have to explain this process to anyone and could simply issue the rate on a ‘take or it leave it ’ basis prior to any disclosure being made. What’s left ? US$ 2.40 per MT to distribute to the P.A and all SI’s participating is a protected string deal. There are variables to this whole aspect. For instance, as per past experience, the LDD is only paid out on average 18 times over 36 month(or less) which means the PCT is to collect a small gross profit per MT on the deal itself, plus on average another US$ 1.00 per MT per month for LDD that was not claimed on the LDD offered; even more if a standard P.G SLC (if?) as secured from the supplier is supporting the LDD payments, as such a P.G is not collectible by the PCT may be assumed for this deal. In effect the PCT will secure a good gross profit earning, albeit the PCT will not know what the final gross profit total will be until, final delivery eventuates. This is not the same when paying commission to string members were given a set firm rate, payable every month, on each and every successful delivery.
- From the US$2.40 Per MT left, the P.A may allocate for himself a higher rate than all SI’s because the P.A is managing a string on behalf of the PCT. To do as much a base individual payment rate is first established.
- The P.A pays himself lets say 50% on what’s left over, on this occasion because he did most for work compared to the others in the string who did very little after the initial string was formed. 50% is the P.A maximum entitlement.
- US$ 1.20 per MT for the P.A leaves US$ 1.20 per MT in total to distribute to his string. 5 remaining string members each receive a set irrevocable commission payment rate of 24 cents per MT per SI.
- If lets say Hassan had done a lot more work that the other SI’s , then the P.A could serve from his own share and added 10 cents per MT to Hassan. This is a judgement call make by the P.A .
- Above represent the simplest aspect to delivering a complex subject matter. TRA once released in Mid 2020 will support this straight forward aspect.
- The one fact which is true; the more ISS participating in the string, the smaller the such payment become , the more complex such matter become. It’s also true that a PCT working by itself , will make more from a smaller OPX rate applied to the sell price.
Lets look at at typical ill informed deal still coming to our inbox everyday from ill informed traders.
FAKE NOT ASCERTAINED SUPPLIER-SI(Mary)SI-SI-SI-SI-SI-SI-SI-SI-SI-SI-SINO END BUYER
Mary in Russia does know a ‘supplier of sorts’ who is able to supply crude oil, but Mary has nothing writing and takes the word of the un-ascertained ‘supplier.’Mary has been ‘trading for years’ in an ad hoc uniformed manner, and has a large number of other ill informed SI’s in other countries who simply don’t know better either. Mary calls herself a ‘mandate’ to this newly acquired ‘supplier.’ Mary was offered the crude oil at Dubai Platts less US$ 50.00 per MT discount. Mary is excited. Mary prepares an offer as per a copy she found being used by other ill informed traders ‘years ago’ along with a NCNDA. She now issues by email an offer to all the one ‘traders’ she knows. Before long this one offer, has produced many offers to perpetually orbit the world ( as POOP) some times for years. All trader involved also take their own ‘share’ of the rates appearing on the document, in where the document is changed to record lower commission rates (changing the offer rejects the offer anyway.) Mary is flat out ; all her fake ‘Buyers’ want to buy the fake crude oil, expect now they are all arguing about fake commission payments, for weeks instead of looking after the deal. The offer was sent out, with the following line applied by Mary;
- Buyer side commission US$ 10.00 per MT
- Sellers side commission US$ 10.00 Per MT
Where is the other US$ 30.00 per MT? Mary in her wisdom ensured her $30.00 cut is also accounted for privately. Why say anything to anyone, is her rational. The offer travels up and down the main SI string and branching strings created therein in where the commission rate is now at US$ 1.00 per side. That’s all it does, the offer travels around the world never able to be closed, because there is nobody controlling the deal, protecting commission nor is able verify if the supplier is real, even with wrong specification specified on the offer , not one SI has questioned such matter. Everyone has a buyer, everyone signs a NCNDA and are seeking commission pay-orders, everyone involved truely believe that they are trading in a wanted commodity when in fact they are simply ‘passing time.’ 4 weeks later some SI’s cry out ‘circumvention’ until the next dumb deal appears, and the whole aspect re-commences with a new ‘supplier.’ The above useless string example happens a lot , even today, as new ill formed traders appear every year. The informed PCT must be able to identify such deals and dismiss them quickly is an aspect explained intently in the SMICE doctrine which offer the raw straight-out perspective.
Sometimes a string members in a proper deal, may show dismay at the low rate they are getting, because many can’t see the bigger picture. In turn the PCT may seem to be offering a very low ‘suspect’ rate to their SI’s. If a person(s) / family unit works at a Job for 20 years, earning an average take home pay of US$ 150,000 per year; the combined earnings of 3 million dollars would have been generated. After living expenses are deducted, a middle to low income family will have very little saving to show. This is not the same perspective as a PCT P.A closing a deal at 45 years old, in where the informed PCT earns, over a 3 year period, for using their ‘brains and not brawn’ over 4 million dollars before taxes, on one single deal being closed, all because they had spend 5,6,7 months working on such a single revolving deal, a few years after completing the study and obtaining experience. So longevity ( to keep on trading) is an important factor. Our figures are conservatively served. The above transaction taking years to incept could have been closed with i.e: 3 SI’s or by a lone PCT, for much more. But this potential earning is not guaranteed, but then again, 20 years of continual employment when commencing such a job, is not an assured aspect either. It’s definitely not assured if a business idea is incepted i.e; a restaurant. One other point here is that; even when commission payment are measured in cents, the final sum earned for the work applied to close on a revolving commodity deal can only be met with great pleasure, and a sense of achievement and accomplishment for those who learn their profession intently. The other point; payment of commission and applying proper procedures therein are complex matters that should not be taken lightly and must be addressed professionally.