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.