With its roots in the colonial age, when money was scarce; popular during the Great Depression, and once again gaining popularity during the lengthy recessionary period of the 1980s, the art of deal making absent currency exchange is said to be in its fourth wave, once again gaining both in popularity and necessity. While bartering may be an old concept, it still has enormous contemporary relevance as a tool that businesses of all sizes can utilize to more extensively maximize their cash reserves and to attract customers.

Bartering is not negotiating! Bartering is “trading” for a service, or for the goods you want. In essence, bartering is simply buying or paying for goods or services using something other than money (coins or government printed paper dollars). Thus defined, bartering has been around much longer than money as we know it today. Recent estimates indicate that at least 60 percent of companies on the New York Stock Exchange use the principles of bartering as a standard business practice.

Politicians barter daily to gain support for their pet projects. U.S. aircraft manufacturers barter with foreign airlines in order to close sales on million dollar contracts. Perhaps you have experienced at one time or another in your life, a friend saying, “Okay, that’s one you owe me…” Basically, that’s bartering.

Many people think of bartering as an exclusively old-fashioned means of trade. Some would be surprised to know that today corporate bartering is a multi-billion dollar industry. “In 2007, the total value of commercial barter transactions reached $6.5 billion, up slightly from the previous year”, said Krista Vardabash, investor relations director for International Monetary Systems Ltd. of New Berlin, Wisconsin, one of the biggest bartering businesses worldwide.

Businesses trade excess inventory for products from other businesses quite frequently. For most of us, however, our main form of trade is not bartering. Most of us have become accustomed to using money. Long before there was money, people needed things they didn’t have; and found ways to acquire them through barter. Retailers may assume that barter is a thing of the past, but it’s actually a thriving method of business, an evolving business practice quite common in this knowledge age marketplace.

In developing nations, it’s often the primary mode of exchange, but in the United States, barter has gained kudos and won converts because of the benefits it can bring to business — including natural products stores. Barter is often overlooked as a means of doing business because of misconceptions about how it works, and viewpoints that it is a practice from days of long ago. Retailers worry about potential tax problems and accounting hassles that might arise from entering into barter agreements with other businesses, but not to despair, those are issues that can be addressed as well..

“Bartering is a way out of a money mentality.”

The Trade Network, which was growing in prominence in Jamaica up until late in 2003, but seems to have dropped off, boasted members ranging from local janitorial services, television stations, hotels, full service printers, and communications specialists.
To barter, a company only needs to locate an exchange where barter credits are provided, and this is not as daunting as it may seem, as reputable international bartering associations abound. How does it work? A business lists a good or service for trade through the exchange. In return, the business receives a trade credit based on the dollar value of the good or service offered. The business can then use its trade credits to “purchase” goods or services offered by other members. The result is that the business is hooked up with a network of actively bartering businesses. So, for example, a company with 15,000 square feet of extra carpet could barter for a weekend stay at a luxury hotel for its employees. Bartering or the concept of “trade dollars” replaces cash transactions with trades of products or services.

The bartering network keeps track of everything, accepting a mixture of cash and trade for their services, operating much like a bank, with members having “checking accounts and debit cards. Fees for transactions are charged and for keeping track of members’ accounting. When a member wants to purchase something, he or she pays for the product or service by writing a barter cheque. When someone makes a sale, points are credited to their barter account; when someone makes a purchase, points are deducted. At the end of each month, members receive statements showing their purchases and deposits.”

Barter places value on human resources and not commodities; increases cash flow and buying power; stretches resources; extends goods and services to those on low or fixed incomes; and taps relatively wasted talents and resources. Bartering is particularly good for businesses with excess capacity or extra time, and works best for businesses that have a good cash flow, For those businesses in trouble, who desperately need to turnover their currency, getting barter dollars does no good because in those situations, these transactions do not add to cash on hand. Bartering is also suitable for small businesses that have services or goods that are in demand.

Hugh Brown, who up to 2003 was listed as the Executive Officer of the Jamaica Trade Network commented then that.”Those with computers or advertising do well in barter”.

Mr. Brown believed bartering has a way of helping identify what things are important. “When we trade our time, talents or goods it gives us a chance to think of their value in a new light. We also get an opportunity to look at our own skills more closely,” he said. Bartering can even save money by eliminating mark-ups. When you buy in a store they have to include enough profit to pay for their rent, insurance, etc. A barter deal tends to cut out much of the extra costs,” he said.

The advantage of spending trade dollars is that companies can conserve cash and network with like-minded businesses that might otherwise not have used their services. Business owners say the advantages of bartering are three-fold. First, it provides tremendous cash savings. Secondly, bartering saves businesses some cash because it’s cheaper to buy things with ‘trade dollars’ than with cash, and third it helps to expand a company’s customer base. Brown cited the following example, “Let’s take the matter of CVM television, which at the time was a long-standing member of our network. Back then, they were spending about $80,000 per month on security and janitorial services. No cash has changed hands. It is all done on trade.”

Transactions such as this represent tremendous cash savings to organizations like CVM, because they would have otherwise had to pay for those services with scarce cash. Andrea Messam, who at the time was CVM’s financial controller, reported that since the company joined the trade network, it had benefited tremendously from trading services.

“The trade network had some positive effects on our cash flow,” she said. “We did an average of $1-million worth of business through the network which provided us with security and janitorial services, and we in turn supplied advertising to other members allowing us to maximise the use of our cash resources.”

The concept is quite useful and can have a future in Jamaica. Sam Cooper, head of the printing company, Excell-O-Graphic, located at 135A Mountain View Avenue in Kingston 3, said: “Whenever I need a service, I first think to call someone in the barter. You have something in common with them, and particularly for us, we have been able to increase print volume through bartering.” Mr. Cooper, who has been a member of the Jamaica Trade Network for a number of years says that the “sad part about being in a trade network in Jamaica is that there is not many companies coming on board that provide reciprocal services.”

“As a printing company that does a tremendous volume of print work, we have a high demand for paper suppliers, ink distributors, and support services for the digital printing presses, but none of these companies are members of the network to which I belong. We’d certainly love to pay for some of those goods and services with trade dollars.”

Some have gotten print advertising, purchased business cards, and even used their barter account for travel, hotel accommodations, and dining. Bartering provides businesses with free publicity when their services or goods are traded. As long as a store can find other businesses that have services it needs, argues Mr. Brown, the barter option can be useful. “Our business owners are flexible and creative and that’s why we’re successful,” Mr. Brown said. Other benefits to member businesses were increased sales, and offsetting of cash expenditures.

“Member businesses have gotten new customers from parishes as far away as Montego Bay, Ocho Rios, and Negril, as a result of their barter exchange membership,” said Mr. Brown, who adds that those contacts oftentimes converted into cash contacts too. Indeed, with the belt-tightening budgets that many companies are adapting to stay competitive, oftentimes employee perks and incentive programmes are the first to be cut. “A lot of our clients have found that barter is the vehicle to get these programmes back into a budget, which is yet another advantage you don’t have outside the bartering system,” Mr. Brown said. “It’s challenging for companies to come up with money to reward employees, but if they can barter with a hotel for an empty room and turn it into a weekend getaway, then it’s a win-win situation for everybody.”

An executive at an upscale Montego Bay resort believes that Jamaicans should closely examine the barter network because it has a lot of potential. “Instead of wasting unused inventory why not exchange it for other goods and services?” questioned the resort’s executive. “Small properties that have extra empty rooms can exchange rooms for other services or goods like mattresses, which we traded for sometime in 2001,” he said. “It is a little difficult to get full acceptance of the concept now locally but it is quite successful and intense in the US and other countries. Even though no one locally has ever formally computed the value of the bartering economy, research has shown that it is an $8.6 billion industry involving 400,000 businesses in the United States and Canada.”

It remains a complex multilateral exchange, proving to be not only a profitable alternative to liquidation, but also a way to gain access to new markets. Further research has shown that within the last five years, barter has become very sophisticated in that about 65 per cent of Fortune 500 companies that do it increase their bottom line profits because nobody gets stuck with anything.

Concerning the value of this “trade dollar” concept, how does it relate to a company filing its tax returns? “The goods or services exchanged have a dollar or fair market value, and this value must be included in the income of both parties.” Companies should note that bartering offers no tax advantages. Barter and cash transactions are the same in the eyes of the Revenue Department: both are taxed equally. In fact, bartering exchanges must report goods and services sold through barter to the Revenue Department.

While trade can supplement business, Brown cautions a business to limit how much it accepts. He recommends calculating the value of items the company currently buys with cash and determining what can be substituted with trade. For example, a business spending $4,000 each month for items such as advertising, printing, accounting and cleaning services can substitute those expenses with barter, freeing up about $48,000 of cash a year for other purposes. He suggests a cap of 5 to 10 percent to avoid being stuck with lots of barter dollars, which a business doesn’t need.

“Having 50,000 to 100,000 bucks in the barter bank not collecting interest is futile,” he cautioned. Mr. Brown suggests doing your homework before deciding on joining barter exchanges that are available to businesses. “A reputable exchange will offer references – including other businesses in the same category – and clearly spell out all fees up front. In addition, the better exchanges will make an extra effort to find a business that matches a member’s specific needs,” he concluded.

Learning and tapping into the art of bartering, can undoubtedly help emerging and existing businesses navigate the uncertainty of economic waves by offering a viable, cashless strategy to secure critical products and services essential to operational productivity.

(Updated, edited and reprinted from a previous issue of Businessuite)

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