THE OLDEST FORM OF COMMERCE
Trading one item or service for another is the oldest form of commerce, pre-dating the invention of money. It still works! Over the years, I’ve traded art or writing services for everything from Windjammer cruises in the Caribbean to having a piglet raised to maturity to stock my freezer with bacon and pork roasts.
Ben Franklin said, “A penny saved is a penny earned,” and it’s as true today as in Revolutionary times. When I built my home, I used art to pay for more than $30,000 of the cost - everything from the architect’s fees to carpet and tile, solar hot water and landscaping. I’ve had my teeth fixed, cars repaired, taxes prepared and rented vacation accommodations on the ocean using barter.
THERE ARE TWO WAYS TO BARTER
1. Directly, one person or business to another.
Most of us have done some trade or “swap” at one time or another, usually with a friend of relative. “I'll swap this painting I've just finished for your set of golf clubs.” You initiated the trade and made the offer. But, as a prolific artist, you soon run out of friends or relatives. Here's a “secret.” You never know who is willing to barter until you ask.
Example: You are at your dentist. He's just told you, “You need to have a tooth capped, and it will cost $1,200.”
You notice the pictures on the wall in his waiting room look pretty shabby compared to the new chairs he's just purchased.
“Nice new chairs!” you say.
“Cost plenty,” he replies.
“Did you know I'm a professional artist? I've got two new paintings that would look great with that fabric if you'd like to replace the pictures you brought from your old office,” (You say smiling - with the dazzling choppers he just cleaned.)
“What might they cost?” (You can almost see his ears perk up. He probably thinks the same thing you are.)
“I'd be willing to trade them for the cap I need. Would you like to see them?”
“Can you bring them around when my wife is here?” She's the boss when it comes decorating.”
“How about this evening after the office closes?”
By the end of the day you just saved $1,200 cash. I'm sure you see the possibilities, Think about your accountant, auto mechanic, computer geek, lawn guy, lawyer, chiropractor, even your hair stylist, the plumber, house painter – anyone you do business with. Even if they don't have an office, everyone lives somewhere with walls, and probably a significant other who'd welcome something fresh and new.
2. Through an organized Barter Exchange.
Did you know there are Barter Exchanges in almost every major city in the US and many more around the world? There are more than 500 barter exchanges in North America and Latin America, and thousands more throughout the rest of the world.
Unlike trading directly, one item or service for another, members of an exchange use trade dollars, to handle their transactions. Members accumulate trade dollars by providing goods or services to other members. These trade dollars go into their accounts – just like a checking account at a bank. When they need something another member has to sell they purchase it using trade dollars from their account.
The Trade Exchange acts as a third party record keeper, providing monthly statements to clients, which reflects all trade purchases, sales, and a current trade dollar balance. Barter is simply a mode of payment - like a checking account, cash or credit card.
There are no credit card fees, however, each time a transaction is made between members, the exchange receives a transaction fee in cash, usually 10% – 15% paid by the purchaser (sometimes half paid by each, depending upon the exchange).
In most exchanges a member is assigned to a Business Broker, whose job is to become familiar with what each member has to offer and help encourage and facilitate transactions between members.
REASONS TO BELONG TO A BARTER EXCHANGE
1. No billing
2. No receivables
3. No bad checks
Each transaction is immediate. Barter credits and debits are reflected on each member's monthly statement.
4. Eliminates competition
5. Overcomes poor location
A member with trade credits in his account will pass up other businesses with the same product or service because they will only accept cash.
6. Brings new cash customers
Satisfied members make recommendations to cash paying non-members. Word of mouth is the most effective advertising.
BARTER EXCHANGE LIMITATIONS
The goods and services available in a barter exchange will be limited by the number of members, what they have to sell and the amount of trade business members are willing to accept. Most barter exchanges recommend that a member does no more that 10% of his total business in trade. Something you need or want may not be available when you need it or not at all. Usually, there are more members providing services than hard goods. It is almost always easier to find a member who fixes your teeth, files your taxes, provides legal services, paints your house or mows your lawn than will sell you four new tires for your car.
Let's say you need a new computer for your business, and you have your heart set on the latest model. Probably not available. An older or used version may be. Your Business Broker should be talking to you about “cash replacement” - saving cash to buy the computer you want by using trade dollars to offset another expense. Advertising for your business, for example, that may bring in extra cash dollars. If you have “tunnel vision” you will soon be an unhappy member with dollars in your account and nothing to spend them on.
Be wary of exchanges that allow “part cash, part barter.” Individual exceptions, such as a very expensive part needed to repair your car, or the material used by a “handyman” to paint your house or build a new deck is often allowed. Unscrupulous people will try to bend the rules to their advantage. A good exchange will have clearly written rules about what is allowed and what isn't. Violations should be brought to the attention of the exchange management and repeat violators “shown the door” quickly!
TRADE DOLLARS ARE THE SAME AS CASH DOLLARS
Keep in mind that the IRS considers a barter dollar the same as a cash dollar. Barter income is treated the same as cash income. There are no tax advantages or disadvantages to bartering. Trading should be considered a marketing tool, not a tax tool.
BARTER IS BIG BUSINESS
According to Barter News Weekly: There are more than 500,000 corporate trade exchange members globally.
Almost 1/3 of all small businesses in the US use some form of bartering.
65% of corporations listed on the NYSE are involved in bartering.
Barter accounts for 30% of the world’s total business (U.S. Department of Commerce).
65% of Fortune 500 companies engage in barter in one form or another.
Harvard Business Review says: Business bartering is big, and it’s happening at every level. The International Reciprocal Trade Association reports that in 2011 over 400,000 companies worldwide used bartering to earn an estimated $12 billion on unwanted or underused assets.
Now, at barter exchanges across the world, professionals from doctors to electricians (and artists) are trading their services for goods, services or “trade credits” which can then be used to pay for business expenses whether printing, advertising or travel. Meanwhile, corporate barter firms, the intermediaries in barter transactions, have flourished, helping companies to create value from assets which may no longer fit their strategy, may not be working at capacity or are no longer needed. Client firms swap what they don’t want or need for something they do — frequently media services.
In addition to swapping goods and services for media, companies can use the trade credits they receive from the bartering intermediary to exchange for freight, travel, waste management and equipment. Honda, Kia and Subaru have bartered cars for media trade credits. Haymarket Exhibitions made part payment for advertising using tickets to their exhibitions. Leading electronics firms have bartered discontinued stock, placing it in leading hotels in exchange for media and trade credits — gaining a potential new client in the hotel group in the process.
Food manufacturers have bartered excess inventory in exchange for media credits or trade certificates allowing them to purchase other services such as hospitality and cleaning. Lufthansa has bartered real estate for media credits and aviation fuel.
Most of USA Fortune 500 companies use barter to increase their market share and improve productivity.
If GM uses barter, shouldn’t you consider it, too?