Bartering’s Back…But Is It Worth It?

NOTE: The information contained in this article is for informational purposes only. The bartering firms listed are examples of bartering firms. The mention of the firms is not a recommendation. Independent research and comparisons should be completed to determine if bartering is appropriate for your situation.

Centuries ago, bargaining was the primary means of payment for services and goods. There was no cash, only exchange. People offered the services or products they felt were a fair trade for other services and products. Well, guess what? Even though bartering isn’t the primary manner for transacting business, bartering is still very much alive and well in the 21st century. Need proof? How’s this: According to the International Reciprocal Trade Association, bartering resulted in $8.43 billion worth of international business in 2004! That was about 15% of the world’s business for that year. Amazing how much business a reliable promise can generate, isn’t it? Well, that’s exactly what some of today’s bartering brokerage firms are banking on!

National Trade Banc, BizXchange, and Barter Business Unlimited are all popular bartering brokerage firms that provide an arena for businesses to trade with one another; however, there are over 500 bartering firms operating in the United States alone. And guess what? They’re all looking to make a buck by saving you lots of bucks! When you trade with the business bartering firms’ help, they make money. You’ll learn more about that as you read on. For now, back to the basics…

Each of the bartering brokerage firms has extensive business networks. Some of the firms only operate locally while others have members worldwide. It’s also important to note that though some bartering firms have participants that are primarily concentrated in certain industries. Despite those differences, all bartering brokerages work on the same basic premise as the barter systems of yesteryear…with two distinct differences for bartering systems of the past: Flexibility and fees.

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Flexibility
In the past, bartering involved two parties. Today, that’s not the case. Many of today’s bartering programs allow business owners to “sell” their services or goods to another member of his / her bartering group and then “buy” services or goods from that same party, another party, or multiple parties. Here’s an example:

• Three people, Nancy, Randall, and Samantha, are part of bartering firm X.
  
  
• Nancy owns and nail salon.
  
  
• Randall owns a restaurant.
  
  
• Samantha sells straws.
  
  
• Randall wants to barter with Samantha for 5,000 straws.
  
  
• Samantha agrees to the barter and “sells” Randall the 5,000 straws for $100.
  
  
• Samantha now has $100 worth of “credit” (trade credit) that she can then use however she wants—for business or pleasure. She may decide to use $25 (trade credit) to get her nails done at Nancy’s salon and the rest to take a friend out to dinner at Randall’s restaurant. Another alternative would be to use the credit for something else such as printer ink from a barter member who sells that product. Meanwhile, Randall, who “bought” goods will have to pay (via bartering) $100 worth of products / services to another business to eventually bring his account back to $0.

Fees
That deal sounds good, right? A business owner getting what he or she needs without having to pay for it with cash sounds heavenly doesn’t it. Well, there is one catch to the business dealings: Fees. As with most other professional organizations, many of the bartering services do have a membership fee. This may be a one-time fee, an ongoing amount, or a combination of the two. In addition to the membership, the bartering firms sometimes attach a cash (not trade!) fee for each barter transaction—when you buy and when you sell. Some companies use a set per transaction fee but most transaction fees are a percentage of the trade. Here’s an example:

Say that company X to which Nancy, Randall, and Samantha belong has a 5% transaction fee requirement. That means that each of the business owners will owe money (real cash) to company X when the barter is transacted. Keeping with the scenarios above, here is a look at what each vendor would owe:

• Randall:
  For the barter (buying) of the straws: $100 @ 5% fee = $5
  
  
• Samantha:
  For the barter (selling) of the straws: $100 @ 5% fee = $5
  For the barter (buying) of dinner: $75 @ 5% fee = $3.75
  For the barter (buying) of nail salon services: $25 @ 5% fee = $1.25
  
  
• Nancy:
  For the barter (selling) of nail salon services: $100 @ 5% fee = $5

In addition to the transaction and membership fees, a barter firm may also require an additional monthly fee to sustain your account. This fee may be in trade due, cash due, or a combination of the two.

To Barter or Not to Barter
Now that you’re informed about what you may encounter if you join a business bartering service, the question is: Is business bartering worth the cost?

My response: It depends. Whether bartering is a “good deal” depends on your business and its financial condition because participating in a business bartering services is a business expense. Participation will cost you money, as indicated by the possible fees above. However, participating may also cost you in time (if you sell a service) or inventory (if you sell products). Therefore, you need to determine whether you can afford to barter your business’ products or services. If the math works out so that you’re not losing money by participating, then go for it. Otherwise, re-evaluate the usefulness of bartering in the future and act accordingly then.

Want a second opinion? Take this quiz to see if bartering is for you.