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  1. #1
    ABW Ambassador
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    SaS and Credit Crunch
    The news keeps reporting about there being a global credit crunch.

    I was wondering what proactive steps SaS is taking so that merchants don't go offline this Holiday season simply because they can't borrow money to prepay commissions.

    It seems to me like lending for commissions is not that risky of a loan. Basically you are loaning money against money. I would hate to see a large number of commissions lost this year because credit is hard to find.

  2. #2
    ABW Founder Haiko de Poel, Jr.'s Avatar
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    It's not the network's job to financially help merchants, if they don't have funds then they should be turned off so that affiliates don't get taken advantage of. Shareasale provides tracking and consolidated payments, it's not a bank nor a lending institution.

    No payee no playee, it's as simple as that.
    Continued Success,

    Haiko
    The secret of success is constancy of purpose ~ Disraeli

  3. #3
    ABW Ambassador Doug247's Avatar
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    Good Questions and Good Answer! Gotta Love ABW
    Thanks,
    Doug

  4. #4
    Merchant & ABW Ambassador
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    I guess SAS could actively ask merchants to have a valid backup credit card in place. Or even have a peroson to spend an hour or 2 calling merchants that goes offline

    After all, affiliates don't make $$ for dead link/offline merchants.
    SAS does not get the commission
    The merchant.. No sale.

    It's a lose-lose proposition for all.

  5. #5
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    > "It seems to me like lending for commissions is not that risky of a loan." <

    I think it's no more or less risky than any commercial lending (in theory, it's "safer" than lending money to buy TV or newspaper or direct-mail advertising costs, since those might not bring any sales, while affiliate commissions are usually only accrued for actual sales transactions; of course, there's no absolute guarantee that the affiliate-generated transactions will be profitable).

    For someone who "advances" or "lends" funds for payment of affiliate commissions, the question isn't whether there is revenue that could be used to repay any loans for the commissions -- the question is whether the revenue will be used to repay the loans. In some cases, 100% of revenues might already be promised as collateral for other debt, or may be needed to cover payroll -- or banks may unexpected increase the "holding period" for merchant credit-card deposits (if there are increased fraud or default rates, or perhaps just to improve the bank's own cash flow).

    Let's be clear here: a merchant might generate $100,000 in sales in a month, and might then owe $8,000 in affiliate commissions, which superficially sounds like a "sure thing" -- but payment of the $8,000 isn't assured if the merchant also faces monthly expenses of $55,000 for payroll, $40,000 for cost-of-goods, $15,000 for shipping costs, and $10,000 for rent. I think most merchants would pay those other expenses before paying affiliate commissions (or replenishing their network account).

    When I saw Haiko's post about CJ/ValueClick, I immediately thought about the potential risks with ShareASale, which is a much smaller, private company. If sales decline, then so would ShareASale's fee revenues; if merchants "go offline" more frequently or for longer periods due to cash-flow problems, this could also reduce commissionable transactions, and may also impact affiliate satisfaction. And if competitors like CJ and GAN respond to an economic downturn by reducing setup fees and by aggressively recruiting ShareASale's merchants, that might also have an impact.

    Of course, ShareASale's entire team is away at the "ThinkTank" event this weekend, and their ability to pay for that event is certainly a positive signal.

    I don't really know if the "credit crunch" is actually affecting "regular credit cards." None of my banks has reduced the credit limits on my personal MasterCard or Visa credit cards. I don't have separate "business" credit cards, so I don't know if banks have reduced credit-card limits for business customers. And I don't have any home-equity or small-business lines of credit, so I don't know if those have been "rescinded" for some businesses or consumers.

    Certainly, if ShareASale is finding that some of its merchants are having cards declined "unexpectedly" (for reasons other than over-limit, but instead a reduction in credit limit or closure of an account due to the bank's cash-flow problems), it would be prudent to let other merchants know about this issue and encourage wider use of "backup credit cards."

  6. #6
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    Quote Originally Posted by Haiko de Poel, Jr.
    It's not the network's job to financially help merchants, if they don't have funds then they should be turned off ....
    It wasn't AIG's job to check the viability of the mortgage backed securities they purchased. That was FannieMae's job. AIG got chomped anyway.

    Everyone is talking about systemic faults moving through the credit system. A systemic fault could play itself out poorly with SaS's model of upfront payments. Companies with good lines of credit are reporting problems drawing on their lines of credit from cash strapped banks.

    An SaS merchant might have a great line of credit, but isn't able to get the cash to prepay affiliates because of faults in their bank. This would be bad for SaS and affiliates.

    BTW, the ideal affiliate payment system is neither prepay nor post pay. The ideal system is real time ... one where funds stream into an affiliate account as affiliate sales occur. Banks that are having a hard time coming up with money to lend might be conducive to implementing a system closer to the real time ideal.

    I suspect that if SaS worked with banks, they could find something better than this prepay system. Banks do their transaction fees real time. Banks offering merchant accounts might be conducive to offering a line of credit backed by the merchant account.

    While SaS and affiliates should avoid becoming creditors to internet merchants, it is SaS's job to assure that their platform is not subject to a systemic credit fault that is working its way through the system and has already taken down a number of banks and otherwise viable companies. The former employees of Lehman Brothers are probably wishing they had someone look in greater detail at the securities in their vault.

  7. #7
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    Thanks to everyone here who has contributed to this informed & mature discussion. I tend to agree that SAS should in no way act as a creditor for any merchant -- that's what banks are supposed to do. If a merchant's bank will not support them with a short term loan during the holiday season, then I'd hope that they would look elsewhere for another banking institution. The last thing we affiliates would want is for SAS to extend credit and then find themselves in financial difficulties if a series of merchants defaulted.

    And I also hope that the merchant community will not panic as a result of the unrelenting bad news and allow themselves to go offline. The fact is, without their affiliate links sending them traffic, they will be condemning themselves to oblivion if they go out for any length of time during what should be the busiest season of the year.

    This financial meltdown is out of everyone's hands, so rather than going offline, it would be better to negotiate a lower rent with a landlord who is also worried about cash flow and thus does not want to lose a tenant.

    NO affiliate traffic = MANY less visitors = MUCH less $$ = BAD news for everyone!

    .
    Last edited by Aphiliac; October 12th, 2008 at 06:21 PM. Reason: <fixed typo>

  8. #8
    MasterMike HardwareGeek's Avatar
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    I thought SAS offered credit to merchants already

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