Posts Tagged ‘Deficit’
Barter Exchange Q&A: Credit Members for Set-up Fee?
Written by BarterPro
Thursday, 13 November 2008 14:49
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Q: There is an exchange that is signing members up by giving them a trade dollar credit in the exchange equal to the new account set-up fee they choose to start with.

This seems to be a great idea.

The question is… If I post a sale to a member for the purposes of depositing credits into their account (therefore triggering the appropriate 1099 activity for the member),  I am getting those credits from my operating account’s credit line. Are the credits I use from my credit line considered income to my exchange once I sell them to someone else?

 

A: Posting trade dollars from your operating account to a members account would be an expense to your exchange. You are basically spending trade dollars that just haven’t been earned yet. In this particular case, it appears to be a Marketing or Sales Expense, which should offset future trade dollar revenues, but speak to your accountant to be sure. 

While this sounds like a great idea, in my opinion, doing this can have significant long term repercussions:

The exchange is spending trade dollars that it has not earned, thus creating a deficit in the exchange’s economy. Exchanges should ultimately maintain a zero deficit system to remain healthy and prosper.

You will end up with all of your members having a positive trade balance, with no negative offsets, so members will have little incentive to sell and get trade, as they already have trade dollars in their account.

If members accumulate too much trade and initially don’t find things to spend it on quickly, they may go on hold and stop selling.

It eliminates the urgent need for members to make immediate sales so that they can purchase new trade opportunities when they become available.