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Profit Sharing for the Computer Recycler - A Business Incentive

Updated on January 10, 2012
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One method for the computer recycler to increase business is to offer a profit sharing arrangement to clients who provide substantial quantities of computers and peripherals to the computer recycler for disposal. Under this type of arrangement, the recycler provides a portion of the profit from recycling the scrap computers back to the company that supplied the materials.

This type of arrangement does require some special documentation practices to provide a paper trail of material disposition and demonstrate to the client company that the recycler is in fact sharing the proper amount of funds. There are, however, some pitfalls associated with these types of arrangements so the recycler must use extreme caution when considering such an agreement.

An arrangement may occasionally be made with a company to split the profit from recycling computer escrap. The recycler should maintain records that show the disposition of each device and component received from the company. Some devices may be disassembled to use as spares to repair other equipment. Some computers may be entirely sold as scrap. Some computers may be refurbished and sold as working units.

The recycler should maintain records specifying each of the transactions involved in the above activities.

One concern for the recycler before entering into a profit sharing arrangement is who to provide the payment. Providing a check written out to an individual could demonstrate that the recycler is participating in a fraudulent activity or providing kickbacks to a company representative in return for the business. There is a difference between compensating the company for received materials and buying business from an individual. One is ethical, the other is not.

Due Diligence

Due diligence is an activity performed to insure that all reasonable actions to determine risk have been followed. This type of profit sharing arangement is especially risky because under certain conditions the activity could form the basis for a fraudulant arrangement. The recycler should investigate any proposed arrangement to ensure that no motive to commit fraud is leveled toward a representative of the company supplying the recycler with computers or other escrap electronics.

All payments to the company from the recycler should be made payable to the company that owned the materials before the material transfer, not to an individual. A check payable to the company should be written to provide a paper trail of the transactions; never pay in cash when fulfilling such arrangements.

A manager could be motivated to release equipment that should not be released or prematurely if the recycler provides payment directly to the manager. In management this type of conflict is known as the agent dilema, where the manager or agent acts in the agent's best interest regardless of whether that interest conflicts with that of the company. The recycler's customer is the company, not the manager so the recycler should take active measures to avoid any appearance of the agent dilemma.

Avoide Recycling Profit Sharing Arrangements

An old statement of football strategy claimed "when in doubt, punt." The analogy of the punt is often levied toward avoiding risk and in the case of these type of arrangements the best policy may be to punt. Avoid these types of arrangements if at all possible. The financial risks are high and there are many possibilities for a client or customer to question how much they were paid.

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