Bartering for business: business owners short on cash trade goods and services

Black Enterprise, April, 1996 by Carolyn M. Brown

Strapped for cash? Instead of whipping out a credit card or raiding your child's college fund, consider bartering--swapping goods or services with another person or business. Bartering dates back to at least the 15th century, when people traded everything from food to animal hides. But commercial bartering as we know it emerged in the '70s.

Commercial bartering, with over $8.2 billion in sales transactions last year, is growing at a rate of about 10.7% a year, according to the International Reciprocal Trade Association in Alexandria, Va. IRTA serves as an information clearing-house and establishes ethical standards governing barter conduct.

By bartering, a company can generate new sales and higher volumes of business, conserve cash for essential expenditures and reduce unit costs, says IRTA's chief executive officer, Paul Suplizio. "Barter finance allows a company to buy using its incremental cost of production [also applies to international trade]. So long as incremental revenue exceeds incremental cost, it will pay to barter."

Bartering also bolsters the bottom line by enabling firms to trade away excess inventory or resources. A hotel, for example, can fill empty rooms during its off-season, or a print shop can run jobs during a slow time.

There are roughly 600 barter companies serving the U.S. and overseas markets; they are broken down into either corporate trade companies or exchanges. Some 100 trade companies or brokers exchange goods and services on behalf of their clients, mostly multinational firms.

These firms make money by negotiating favorable prices for media or other products and services, which they exchange for the excess assets of their client's surplus cash.

Roughly 500 barter exchanges, such as the National Trade Association in Glenview, Ill., allow members to trade goods or services. Members must list a good or service for trade. In return, those businesses receive trade credit based on the dollar value of the product or service offered. A business uses its trade credits to purchase goods or services offered by other members.

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Barter exchanges make their money by charging a 10% to 15% commission on each transaction; annual fees range from $100 to $600, and maintenance fees run $6 to $30 a month.

Bartering has its drawbacks, including the limitation of the range of products or services available. And you can't always count on getting what you want when you need it. Also, there's no tax break; the IRS views bartering as cash transactions. So, you're required to report bartered goods and services on your taxes.

But don't expect bartering to solve major cash-flow problems. To make it work, figure out how much cash versus noncash purchases are viable for your particular circumstances.

For a list of barter companies and exchanges in your area, send a self-addressed stamped envelope to IRTA, 6305 Hawaii Court, Alexandria, VA 22312. For exchanges worldwide, contact http://www.dgsys. com/irta/.