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Commission Payment
O.K! Let us describe what is out there today as applied by the small number of ill informed import exporting intermediaries and the payment of commission, a process which has dramatically reduced since the release of ITSI. Prior to iTSI, this scenario was common practice applied by the majority of trade intermediaries
A bunch of ill informed intermediaries who have no idea what they were doing, would form a string and before long everyone would be arguing about their share of commission payments. A useless document such a NCNDA would circulate first, for string members to sign; next came a stupidly inspired MPA, or MPTA or some other ‘master payment’ form that all such string member would sign and return down the line to ‘someone.’ Information about the buyer or seller would then be released down the string, sometimes down a very long string containing 12 or more intermediaries located in just as many countries. In some cases intermediaries who were unintentionally acting more like scam artists, would insist on a bank endorsed payment ( on the advice of the person heading the deal) before releasing information in disclosing an end buyer or supplier. Some intermediaries would put mum, dad, uncles and the next door neighbour as beneficiaries stating that such had ‘assisted’ on the deal and were entitled to a share of commissions.
A few weeks later as string members wait for commission payment on a deal that never was, the word comes down the line that the deal has failed.Everyone claims they have been “ripped off” Within 24 hours, all is forgotten, another set of forms arrive for another ‘hot deal’ and just like the inept Homer Simpson, as one deal is forgotten, another intermediary starts another useless deal with nobody being the wiser.etc.etc. A bunch of ill informed clowns pretending ( and believing as much) they were conducting a big juicy commodity deal for doing very little, had their hands out expecting to be paid some ridiculous amount of money, by ‘someone’ nobody knew, was the standard scenario, when we commenced trading in 1988. The FTNX doctrine was born out of this one frustrating event.In 2022 , the doctrine has played its role in eliminating the majority of such ‘traders.’ These are the kind of people who had destroyed this industry from about 1998 onwards.
ITSI and the FTNX doctrine now separates ‘them’ from us.Instead of 20 idiotically inspired deals per week , the informed PCT world on securing one or a few large deals per year. To do as much, a lot of deals and sourcing techniques need to be tested and applied, before one may close.
FTNX TRIBE Rules of Association (TRA) describes matters of commission payment rates which is updated a few times every 5 years or when needed. TRA is also a quick reference guide that an informed PCT can use when unsure about a process. The standard advice can be found in ITSI with added insight available in our own in-house beta publications. Circumvention and lack of knowledge is biggest enemy for ill informed intermediaries who do score a genuine deal. Acting legally as a buyer/seller eliminates such matters of circumvention for the PCT heading the deal. There is no point is trading in commodities if one cannot a secure a rightfully earned payment of commission. If the PCT acting as a buyer / seller closes on a sound commodity deal he or she is guaranteed to earn a lucrative payment of commission. In fact the PCT acting in such a position does not earn a commission payment but a gross profit. All those SI’s or PA assisting the PCT in a string, to close a deal, earns a payment of commission (POC). The POC does not come form fresh air, it’s not conjured from an imaginary deal. The commission is usually secured from the end buyer side. In fact however, the commission is actually made payable from the principal selling goods to the end buyer.The Principal earns a gross profit.From this gross profit and honourable principal , pays commission to those who assisted him/her with the deal.Assisted here means ‘those in a string who disclosed the principal on one side to the other principal on then other side of the deal.” This is the kind of ‘assistance’ which ensures circumvention will occur.
“By late 1988, after months of trading, the fax machine and telex machine was running hot. FTNX was expecting 4 or 5 commission payments in one month as per the above method. It took me about 15 failed payments of ‘commission’ to realise that something was very wrong. “
The person heading the deal is the same person who must secure protect and payout POC. The PCT and principal heading the deal can only pay out such commission if the deal closes. An IPG is served to those assisting the PCT when the contract to the deal is closed on the end buyer side. The deal closes, the honourable PCT clears the deal, leaving behind a gross profit in its account. The IPG served earlier is returned by each string member as signed and accepted. The IPG will have the banking details of the SI. Each SI must return their IPG as no ‘master pay-order’ is allowed. The IPG is returned so it can be used to offset matters of Taxation that the PCT closing the deal will need to address personally later with the relevant tax department. Each IPG is paid out within 7 days of delivery being cleared; usually 35 days or more after the IPG was issued. The term ‘honourable’ in the context advised is a very important one because in the reality of the whole deal, there is literally no scope what so ever for a string member and SI to secure commission payment on a commodity deal unless they act in the position of seller/buyer and principal. The SI has no option in this matter. Either they trade as a buyer/seller or they risk passing information to an informed buyer/seller who is able to close on such deals.To conjoin in a string with an ill informed buyer/seller is the surest way of being circumvented. The SI not prepared to trade as a PCT after studying the doctrine holds the SI position to learn from others when they enter the trading arena.The SI must eventually become a PCT and act as a buyer/seller within the first year otherwise the position of SI becomes embedded; which is an adverse position to hold. An SI who has worked for a PCT for a long time, who feels they can trust him/her, could get paid on a deal closing, as headed by such an honourable principal is the only ‘very small exception’ to the general rule.
No supplier will protect such commission payment, neither will an end buyer — may be a presumed. If SI’s interact with an informed honourable principal and PCT especially one who has been issued a USCT number by FTN exporting, then the Si’s relying on commission being secured, protected and paid out by the ‘honourable’ PCT closing on the deal. In effect if a PCT is not closing the deal, then a precarious situation will always be apparent in matters of commission payments and circumvention for all Si’s assisting in the closing of a commodity deal, is the reality of the overall situation, even a ‘honourable trader’ could become a rogue, when the earlier scent of a huge gross profit has been realised.FTNX knew that it had to protect it reputation, and paid out commissions as per doctrine; likewise large companies located locally to the PCT ‘serves another ‘very small exception’ to the general rule that has been brought to our attention, as reputation is important to such localised industries. When different countries are apparent, the general rule applies as the first considerations.
TRIBE rules and supporting doctrine apply for good reason as tested over a long time. (a) A PCT cannot trade unless it has secured a genuine export ready supplier first; this means a PCT cannot promise anything to anybody ( any SI or string member) for ‘offering’ details about a supplier or end buyer unless the principal is disclosed upfront in support of the doctrine as per (a) above. Note the term ‘promise.’ This is the kind of instrument that forms the basis of an IPG. A written promise has support of the law in many countries.Even a deal witnessed by a hand she bye other, has strong support of the law when it comes to jilted ‘intermediaries and commission payments.” An intermediary can’t hear its case of circumvention (assume) in most federally inspired jurisdiction when an export ready supplier or end buyer is apparent, but it can take the local supplier to the local court, for a breach of a promise. As such, the CEO of a company, offering commission payments to an intermediary assisting such on an export import deal, must ensure that the CEO also applies his personal guarantee and promise to the the IPG is the only safe and reliable aspect that could force a principal to pay out on commission payment earned legitimately; more so when the local PCT obtains a hardcopy of the IPG from a local supplier /principal.
It is up to the SI’s in a string to consider the situation and consider intently who they are dealing with, before surrendering vital information that could activate a live deal. The disclosure of vital information is not the premise that initiates an IPG, no matter how many forms and the likes are signed prior-circumvention will occur may be assumed if the above said NCNDA supported adverse basis is used, once such vital information is surrendered to a dishonourable principal. The SI has to assess the principal and step back from the deal by surrendering to disclose the person making the offer of supply to such a principal. The PCT looks at the offer to see if it can be manipulated to make it workable; if this aspect passes the test the PCT as per doctrine will need to conduct due diligence online first, to find details about the supplier already revealed by the SI assisting the PCT. Under TRA the PCT may not contact the supplier (or end buyer) directly until the deal is about to close and only after other SI’s in the active string agree. If all seems acceptable the PCT takes control of the deal and asks the SI to obtain all the names of the email addresses of all SI’s on that side of the deal leading to the supplier.The SI asked to do as much is usually nominated by the PCT to hold the position of PA. The same situation happens on the end buyers side.
e,g: The PCT decides to rejects the offer and makes a new offer more inline on what it can do safely and allows all Si’s on the active side of the fence, to pass the offer to procure all the way to reach the actual supplier. This is the first step which at the very least provides evidence that such Si’s are involved in a particular deal. It's a way to ensure that the SI’s in an active string are made a part of the closing process, so they can see for themselves how the deal is progressing. This process builds trust between an SI and the PCT heading the deal as well. When the deal reaches contract stage, the document travels down the same course. If the deal closes, the IPG is advised to each string member as issued by the PCT attempting to close the deal as buyer/seller. An honourable USCT endorsed and informed PCT would follow such a process. A dishonourable trader will not. As for actual commission payment rate, the PCT has final discretion on this matter under TRA, in were the basic understanding served under TRA remains intact to be used as a guide. Even when delays to cargoes all around the globe is apparent due to a war and pandemic, delays which will last of years to come, the matter of commission payment rates and process remans effective as a matter of routine as there is no other effective way to secure such payments in the international arena.
In Summary
- A third or thereabouts of any gross value of goods is set aside for foreseeable and unforeseeable expenses, LDD and rebates; whether such expenses is realised is not the point; ensuring a smooth deal is.
- If the PCT has decided that it will add 5.0% to a VLBC of goods valued at US$ 200.00 per MT, then the anticipated gross profit earning expected is US$ 10.00 per MT
- The cut off rate of any gross earnings is set at one third ( US$ 3.30) this means $6.70 per MT, is the reserved commission rate.
- The PCT at its discretion ( not more than 60%) has US$ 3.00 protected for its own benefit.
- leaving $3.70 for and those who assist him or her - to share.
- The PCT may claim up to 60% of such benefits for its skill, knowledge, efforts, liabilities and consequences of closing on a deal.
- This now means that the PCT will get US$ 3.00 + 3.30 of the gross profit earning share outright . The SI’s will share the remaining US$ 3.70 per MT.
- The PA on the sell may be allocated $1.85 cents per MT, assuming 5 more SI’s are involved on both side in total, they’ll each get around 37 cents per MT.
- When prices are high, margins are low and expenses are high a small GP earning can be expected.Being greedy or being unreasonable about such matters loses deals.
- When great prices are secured, margins become higher to which a higher GP can be expected in that;
- If two P.A’s are apparent one on each side, they each would have retained around 92 cents per MT each
37 cents share per MT may seem small in the eyes of a SI, however a VLBC or VLCC shipment carrying 100,000 MT cargo will deliver to each SI a payout of around US$ 37,000 each for doing very little and bearing no consequences nor liabilities; if a P.A serves some of its commission to an attached SI due to special efforts made, the PA will need to address such matters personally and privately with the SI, which is not the business of the PCT heading the deal. We have seen commission payment rates offering ridiculous amounts to SI that will never / cannot ever be realised. A PCT has to be realistic about such matters. As far as the PCT heading the deal is concerned, a standard IPG issuance routine must apply to all such deals. If the deal is a revolving one, then exponentially, an SI would generate a large amount of money — for doing very little. The PCT will lose all or most of the reserved cut off rate set aside, on a revolving deal, and may even lose some of its own profits. The PCT for example cannot cause issues with a deal to because it didn’t have funds to pay for e.g: LDD.A honest p[CT if it is found after the contract has been finalised, that it has amassed more than expected form the deal, then its up to the PCT to advance further payments to each SI at his discretion. The PCT must only offer commission payments which can be safely assured and sustained for the life of the contract.To celebrate the closing of a lucrative deal, FTNX also pays for the whole group the 'humano' contribution as stated under TRA.
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