Posts Tagged ‘Barter Exchange’
Don’t Pay for It… Trade for It!

Welcome to our blog… This blog is for anyone interested in learning more about the barter industry, how to get involved in barter and how to succeed in any facet of barter that interests you.

You can trade what you have for what you want. You can start your own local small barter exchange. You can start an exchange for your community or Chamber of Commerce. You can serve your community and start a Complimentary Currency or  Time Dollar exchange. Or, you can start an online barter exchange and provide trading services to business members locally, across the nation or throughout the world.

The possibilities are limitless… It just requires some creative thinking and a paradigm shift to using alternative currency instead of cash.

Introduction to Barter

Retail Barter

Small business owners conduct barter transactions through membership in commercial trade exchanges. Most members do business within a 35-mile radius.  Their business revolves around services – everything from chiropractors, attorneys, graphic designers, and plastic surgeons to mom-and-pop businesses like dry cleaners and shoe repair.

There are 400 commercial barter exchanges in the U.S. and another 200 worldwide.  The number of members per exchange ranges from about 200 to about 10,000, with most under 1,000.  In total, the business-to-business network of barter exchanges represents over 450,000 companies.

Under the Tax Equity & Fiscal Responsibility Act of 1982 (TEFRA), trade exchanges are classified as third-party record-keepers with the same fiduciary responsibilities as bankers and securities brokers.

Corporate Trade

Larger companies trade goods and services through accounts receivable (AR) trading, relying on a corporate barter company to purchase inventory offered for sale with trade credits and subsequently to fulfill the credits by providing goods and services requested by the seller.  The corporate barter company acts as a principal in the barter transaction, buying and selling for its own account and becoming the purchasing agent for clients with regard to the use of their trade dollars.  About seven to ten corporate barter companies do about 95 percent of the corporate trade business.

Corporate barter as it is practiced today originated in the late 1960’s. At that time, corporate barter was primarily a financial tool – a way for companies with excess or obsolete inventories to recover costs and even full wholesale value for their inventories. Today, corporate barter both remains a profitable alternative to markdowns or liquidation and provides a valuable way to expand a company’s advertising and marketing plan using the leverage of a barter transaction. Corporate barter also facilitates foreign trade with countries that have goods and services to exchange but no hard currency.

Examples of corporate trade are numerous: unfilled trucking on return trips, idle plant equipment, excess maintenance inventory, years on a lease when a company moves, and even stock in a firm. Privately held companies sell restricted stock for trade dollars to offset marketing costs that will help build name recognition and market share, to build trade dollar reserves or to purchase hard assets such as real estate.

Barter Exchange Q&A: Credit Lines & Trade Fees

Q: This question has to do with running an exchange versus what the difference is between the line of credit and a debit to a member acct.

Since an exchange can “create” trade dollars as needed by simply assigning and increasing a line of credit to our exchange, and since those trade dollars have no tax consequences as they are created rather than earned through sale activity, what is the point of charging a member’s account $10 or $15 per month in trade dollars?

We were under the impression that the reason we debit a member account for trade dollars each month is so we have trade dollars available to the exchange for business and personal use, such as advertising for the exchange in a member magazine. But if we simply have the right to create and increase our exchange trade dollar line of credit there appears to be no need to debit the member account other than to create a sense in the member that they need to trade more often since we are debiting their account.

A: One is a credit line where you are using trade dollars that you haven’t earned, which is no different than a business getting a credit line or taking a business loan from a bank to use for business expenses. This credit line (when used) or loan has to eventually be repaid. Charging members a monthly fee in trade becomes trade dollar revenues to the exchange whereby you are earning trade dollars from sales (fees) that you can use to pay for business expenses, such as advertising, office cleaning, computer networking and repair, etc.

Let me correlate this to the US government. The government collects taxes (as an exchange would collect monthly trade fees). They use those taxes to pay for government operating expenses. But, they don’t collect enough taxes because the government spends more than they collect. So, the government is deficit spending, creating a huge deficit in the economy, which a) eventually screws up the economy and b) somehow the deficit needs to get repaid.

Spending a credit line for operational expenses is OK, but only to a certain extent as significant deficit spending will screw up your exchange’s economy. And like any bank loan or credit line, the credit that you extended (even to to yourself) has to be repaid. The only way an exchange has to repay the credit extended to an exchange is to earn trade dollars from monthly trade fees or from profit derived from trade sales.

Most highly successful trade exchanges attempt to maintain a zero or near zero deficit system, meaning the total of all of the positive account balances equal the total of all of the negative account balances, including the exchange’s operating accounts. Exchanges do this by earning as much trade as they need to cover trade dollar expenses.