Barter for a better bottom line

Business-to-business (B2B) bartering is alive and well. Having moved away from peer-to-peer trading, barter has become big business. According to the International Reciprocal Trade Association, more than 470,000 U.S. companies barter over $12 billion worth of goods and services annually. Sixty-five percent of New York Stock Exchange corporations use barter; the U.S. Department of commerce estimates that 20 to 25% of world trade is now barter.

Small businesses, too, barter to keep their inventories lean, conserve cash and tap into new markets. Spectrum Business Insights illustrates why barter is popular:

“For many years, the general manager of a small hotel in Milwaukee has been trading expensive services such as carpet steam-cleaning and air-conditioning maintenance for overnight accommodations in rooms that would likely be vacant. A Connecticut college barters adult education college tuition for tile and construction work in its buildings. One salon owner bartered his styling services for electrical work, upholstery, a water cooler, accounting and a whitewater rafting trip in Maine”

Gary Oshry, treasurer of the National Association of Trade Exchanges (NATE) adds:

“One of the things that’s becoming popular right now is using bartering to provide medical services to employees —things like eyeglasses, dentistry, acupuncture or chiropractic care that isn’t covered on many health plans.”

What is B2B barter, and how does it work?

Modern barter is organized around regional Trade Exchanges. Trade Exchanges are membership organizations that serve as clearing houses to facilitate member bartering. Purchases are limited to goods and services offered by exchange members and may be for personal or business purposes.

Each exchange has their own virtual currency: participants use a membership card and/or number as a debit card for transactions with other members of their exchange. The amount of a sale is posted to each member’s exchange ledger account; the seller’s account goes up by the amount of the sale, while the buyer’s account goes down. Credits accumulate in a member’s account and can be spent in varying amounts; Trade Exchanges eliminate the need for like-value trades. As with conventional credit cards, transaction fees are paid (in cash, invoiced monthly) to the Exchange. Items are priced at fair market value (price being agreed upon by buyer and seller).

I was a member of a Trade Exchange in the Washington, D.C. area in the 1980s and 1990s. I sold select inventory items and restoration services to other members. Generally, profit margins on my items were higher than those of most consumer goods, so I made out well on trades. I bartered for printing, advertising, office equipment, hotel rooms, restaurant meals, and employee incentives. On the personal side, I traded for a timeshare, a family portrait, a 16-foot catamaran and other items.

What about taxes and bookkeeping?

Federal and State taxing authorities treat “trade dollars” the same as cash. In 1982, the U.S. Tax Equity and Fiscal Responsibility Act (TEFRA) established barter exchanges as third-party record keepers of financial transactions of taxpayers (the same status as banks, savings institutions and credit card companies). Exchanges are required to report barter transactions to the IRS, and sales tax on the transactions must be submitted to the State. But, just as barter income must be reported, trade dollars spent on business expenses can be deducted. For bookkeeping purposes, treat trade accounts just as you would a checking account and book sales and expenses in the normal fashion. Discuss bookkeeping specifics with your accountant.

How Trade Exchange benefits your business?

Barter helps small business in many ways, including:

Boosts inventory turnover by moving old and excess inventory. You don’t have to offer everything in your inventory on barter; you get to decide what you will sell. I typically bartered items that had been in inventory for over a year, and I had no trouble selling them. I happily traded my slow-moving inventory for trade dollars that could be spent to buy needed items.

Barter expands your customer base. Since Exchanges are regional, your goods and availability are advertised outside your local market. My Washington, D.C. exchange encompassed Northern Virginia and parts of Maryland. Customers regularly traveled to my Annapolis, MD shop from Northern Virginia (50+ miles) and Baltimore (30+ miles). These customers passed many similar shops to get to mine so they could spend their trade dollars. If it weren’t for my Trade Exchange membership, I never would have seen these customers. I regularly traded within a 50-mile radius of my shop; for example, my printer was in Baltimore and my travel agent was in Falls Church, VA.

Profit margins can be maintained. You can charge retail value in trade dollars, rather than sell items for cash at a discount or having them go unsold.

Barter generates new cash customers. Antiques are sold from curated inventories; our items are not available in every other antiques store. My barter customers often bought non-barter items while they were in my store: they came to buy, were in a buying mood, and were willing to spend cash as well as trade dollars. Such add-on sales were easy to achieve.

Barter helps conserve cash. Although cash sales and barter sales are the same on a transactional basis, the fact that barter sales were (for me) “plus” business allowed me to hang on to cash generated locally and spend trade dollars instead.

How to participate in a trade exchange

Begin by searching the membership directories of the National Association of Trade Exchanges (NATE) (www.natebarter.com) and the International Reciprocal Trade Association (www.irta.com) for barter exchanges in your area. Your purposes in doing so are to be certain that you can trade for items you need among the local members, and that an exchange adheres to the ethical standards promoted by these organizations.

Although an adequately sized local membership is important, some exchanges offer reciprocal trading, which allows dealers to trade nationally.

Not all exchanges belong to NATE or IRTA; if you don’t find anything there that suits you, google “barter trade exchanges” for more options. If you find an exchange that is not a member of one of these two accrediting organizations, check the exchange’s Better Business Bureau (BBB) profile, business details and complaint record (if any).

A well-run trade exchange will offer marketing opportunities to its members, such as:

A website where members can list their inventory items

Email or other marketing services

Face-to-face networking events

Brokers to assist with transactions when needed

An active sales force that recruits new members to the exchange

In closing, a few cautionary words: Before signing up and paying a membership fee, call a few of the members and ask them about their experience with the exchange. Also, don’t let your trade-dollar balance get too high. Remember, you can’t pay taxes, utilities, or rent with trade dollars.