Used in the physical sense, the word “Leverage” means an assisted advantage. As a verb, “to leverage” means to gain an advantage through the use of a tool. For example, you can more easily lift a heavy object with a lever than you can lift it unaided.
Leverage is commonly used everyday in the world of finance. When used in the financial area, Leverage is described as the use of borrowed money to make an investment and the return on that investment.
All the major international banks and financial institutions use Leverage in their day-to-day operations. All banks have limited capital. Instead of lending out their own capital, and thus limiting both the amount of money they can lend because of regulatory requirements and restrictions and the number and type of their business activities, Banks take deposits from customers at say 3% and lend these deposits to borrowers at a markup, say 5%. Since they are lending more money than they have in capital, they thus produce a higher return on equity (ROE).
The banks have thus used leverage i.e. borrowed money to increase their return on capital or equity.
Most of us use financial leverage everyday probably without realizing it. You are using financial leverage whenever you use your Credit Card to buy something instead of using the cash in your savings account. Essentially you are using your credit limit which in reality is borrowing money from the credit card company.
In many instances using financial leverage makes sound financial sense. For example, in the end-of-year sales the gold watch you have always wanted is reduced from $1,000 to $300. Instead of taking the money out of your deposit account, you use your credit card to purchase the gold watch and you settle the credit card balance in full 30 days later when the invoice arrives. By doing this you have taken advantage of the sale price and at the same time you have saved 1 month’s deposit interest on $300. You have thus used financial leverage.
Drop-shipping – The Low-risk, No Cost Way To Sell On eBay
Similarly, you can use financial leverage in the form of Drop-shipping when selling on eBay.
The tremendous advantage of drop shipping is that you have very little or NO risk as a seller. You only pay for items that sell and the drop shipper sends the product to your customers.
The process is very simple. All you need to do is to find companies willing to drop ship for eBay sellers. There are many good and reliable drop-shippers around.
o Step 1 – Find a reliable, or several reliable, Drop-shipping company/companies. There are many around;
o Step 2 – List your auction items on eBay for 3, 5 or 7 day auctions – at your choice. Your eBay’s listing fees are usually advised to you on the 15th of each month and debited to your credit card approximately 1 week later – around the 22nd of each month;
o Step 3 – Sell your item (s) on eBay. You will get paid by the buyer normally within 24-72 hours after the end of the auction;
o Step 4 – Specify in your auctions where you want the buyers to make payment. For example, specify your PayPal or bank account. The choice is yours;
o Step 5 – Collect your payment from the winning bidder in the same account you specified in Step 4 above;
o Step 6 – As soon as the auction is completed and payment received, order and pay immediately for the merchandise from the Drop-shipper using the same account where you received the payment from the seller. Some Drop-shippers prefer to charge a valid credit card. Some prefer PayPal;
o Step 7 – Repeat this exercise as many times as you want;
Let us Summarise:
o Day 1: List your auction items;
o Day 7: Receive payment in the account specified above at the end of your 7 day auction listing. If your listing is for 3,or 5 days you will receive payment at the end of the 3 or 5 day listing;
o Day 8: Order and Pay for the item sold. The Drop-shipper dispatches item directly to the Buyer;
o Day 15: Receive eBay Listing Fees Invoice;
o Day 22: eBay listing Fees debited to Credit Card Account;
o Day 23: You have surplus funds (the profit) in your account;
Thus you have successfully used Financial Leverage to generate profits on eBay. You have not used any of your own money or capital. Instead you have used your credit status with your credit card company:
You received full payment for the item BEFORE you paid the drop-shipper for the item and BEFORE you received and paid the eBay commissions invoice.
The downside risk is that, if your auction item does not sell, you still have to pay the eBay listing fees. BUT this risk is exactly the same if you had purchased and paid for the item in advance using your own money. The SUBTLE DIFFERENCE is that you have not used any of your own money to carry out the operation.
IMPORTANT NOTE: The information presented herein represents the experience and views of the Author with the subject matter at the time of publication. No warranties are made whatsoever about the amount of money, if any, that the reader will earn from following the steps described in this Article and the reader is encouraged to seek competent legal and accounting advice before engaging in any business activity.