Barter Brethren – Retail Barter Exchanges vs. Corporate Barter Transactions
I’ve received a lot of questions recently about retail vs. corporate barter and what is best for a particular business. The short answer is that things are not one size fits all, or to be more accurate, things are not one type of barter fits all transactions. For small to medium sized businesses that want to integrate barter as a strategic business tool, enrolling in a barter exchange is the best way to go. This approach is referred to as retail barter. For larger businesses that may have unique instances of needing to move large amounts of excess or slow-moving inventory, a corporate barter transaction is the best bet. Here are brief descriptions of how each work.
Retail Barter
The first step to conducting retail barter transactions is to join a barter exchange. These organizations are usually made up of between 200 and 10,000 members that conduct indirect barter transactions with each other by way of a credit/debit system. Clients of the exchange are simply agreeing to accept an additional form of currency for payment. Members are free to purchase any product or service within the network—they do not have to accept each other’s merchandise directly. Most exchanges are within a specific geographic area—a city or region—and are made up of members offering both products and services. It is not uncommon to have an extremely broad representations of companies in an exchange—from media organizations, construction companies, dentists, restaurants, attorneys, printers, hotels, ad agencies, graphic designers and plastic surgeons to small consumer-oriented businesses like dry cleaners, flower shops and so on.
There are currently about 400 retail barter exchanges in the U.S. and another 200 worldwide, most with around 1,000 businesses as members. In total, the business-to-business network of barter exchanges represents over 450,000 companies.
Corporate Barter
Larger companies trade goods and services through corporate barter, which is sometimes called accounts receivable (AR) barter. Like with retail barter, these types of transactions also take place through a third party barter company that acts as a broker. A corporate barter transaction is usually a good alternative to liquidation.
Here’s how it usually works: an asset that has lost value or is in excess is identified by a company. A barter firm takes a position in the client’s excess inventory or underutilized capacity and provides them with trade credits up to the full original value. The client then uses the trade credits to offset in full or in part budgeted cash expenses while meeting their current benchmark pricing.
By using the trade credits provided by a barter firm, a much higher value is restored to the client’s assets than would typically be the case using traditional liquidation methods.
In addition, the assets acquired by the barter firm are sold under terms and guidelines specified by the client. More specifically, non-competing channels are used to protect the brand and to ensure that cannibalization of sales does not occur.
The trade credits can be used by the company to purchase a wide range of products and services for which a company normally must pay cash, including advertising, printing, travel and entertainment, construction materials, etc.
Barter is a business solution. No two trade transactions are ever alike. The use of barter as a business tool can vary greatly depending on the needs, financial goals, assets and fulfillment desired by the company. There are many ways in which barter can be incorporated into a business model to increase efficiency and improve the bottom line.
- Bob
Change and more of the same – the future looks bright for barter
The economy took a nosedive and suddenly barter is getting a lot of attention. What happened is that the downturn led many companies—small, medium and large—to discover barter for the first time. As a result, barter is growing faster than ever and receiving the media coverage to match.
In my opinion, though, the positive press and attention is overdue. I say this because I’ve long stated that barter is not only for the tough times. It’s a strategic tool that should be used during economic expansions and contractions. This is because preserving cash and moving excess inventory and capacity will always enable a business to grow faster and become more profitable, no matter what the prevailing economic conditions. Why wouldn’t a business want that arrow in its quiver in good times?
What I’m excited about is that once things turn around, I suspect the majority of companies that turned to barter to help their businesses grow during the downturn will continue to use it as a tool. Why would a company work to become more efficient and then allow itself to backslide? (I’m sure it happens, but it isn’t smart business.) The only difference today is that businesses are forced to be more efficient. Savvy companies have been using barter out of choice for decades.
At its base, barter is an efficiency tool, which is why so many companies are now discovering it—everyone’s working to become more efficient to weather the storm. People are discovering they can use barter to pay for a wide variety of products and services for which they are accustomed to writing checks, including advertising, capital expenditures, commodities and assets. They’re also realizing that using barter helps bring in new cash-paying customers.
When things turn around, none of these things will change.
- Bob
About Bob
Bob Bagga is the President and Chief Executive Officer of BizXchange and is recognized internationally for his accomplishments in the barter industry. More...
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By N2H