To Barter or Not To Barter

Elsewhere in the world, bartering is as commonplace as accepting credit cards, and an integral element to almost every business model. Here in the US, predominantly due to the fact we have been the strongest and most affluent global economy for so long, barter was never a necessity. Until now, that is. With the current collapse of the monetary infrastructure here in America and around the world, increasing numbers of people are flocking to the age-old system of bartering. At the turn of the new millennium, countries like Argentina, who were on the brink of bankruptcy, were forced to revert back to bartering in order to ‘reboot’ their cash economy. Employers were forced to pay their workers with products instead of money, which they then took to large, communal warehouses and bartered their wares with other workers. Hopefully this will not be the plight of the US, and this article aims to highlight some solutions that are already in place and are laying the foundations for a working alternative economy.

Bartering in its simplest definition is the exchange of goods and services for other goods and services without the need for cash. It makes sound economic sense, because a business owner can trade out things at their wholesale (their cost of goods) for things they would have to pay the full cash price for otherwise. If you are a restaurant owner, why wouldn’t you trade $100 worth of gift certificates with the company that does your pest control each month? Or if you own a repair garage, if you can get uniforms for your mechanics and trade out oil changes and services, you’d be daft not to. The benefits are not just improved cash flow and better efficiencies, it’s also a great way to get new customers. Many people are told during their occupational schooling - especially Chiropractors and massage therapists - to barter for many of their start-up needs to conserve their seed capital, because their cost of goods is so much lower than the retail cash price.

But how do you find other business owners to barter with you, or what if you want their stuff and they don’t want yours? Even though bartering makes perfect sense to any business, the simple fact is that most owners don’t have the time or resources to call twenty or more companies to find a partner to trade with, and when profits are up, it’s faster and more convenient just to pay cash. Barter for the most part just happens by accident; two owners meet, they start talking, and decide to swap – much like you might have traded baseball cards in the school yard as a kid. Organized barter companies arose in the mid-50s to address just this problem.

In the early days, the technology to work a little barter company was simple: a phone and a rolodex. As time passed and technology improved, slightly more advanced barter organizations emerged, but merely adapted a similar system of a printed member list and put the bulk of the trading upon the members. By default of this system being cumbersome, organized barter never seemed to get past second base, especially with the advent of payment by charge and credit cards. In America today there are over 1,000 barter companies of varying sizes, from small local collectives of less than 50 members, to national corporations like ITEX and Merchants Barter Exchange (MBE). Non-profit organziations like IRTA (International Reciprocal Trade Association) and NATE (National Association of Trade Exchanges) have attempted to consolidate and uniform bartering via small exchanges, but due to the fact that each barter company does things in slightly different ways with different fees, and most accepting cash as part of the payment it is not a perfect system to manage.

To date, the only national barter company to totally reinvent organized barter is Merchants Barter Exchange. Because they do things so differently to all the other exchanges out there, they do not belong to either IRTA or NATE, as MBE does not allow its members to inflate prices, nor do they allow any part of the exchange to be paid in cash, which makes them the only ‘true’ barter company in the US today. In fact, MBE has made bartering similar to spending cash within a private bank or economy, which accounts for their incredible growth since their inception in 2000.

The downward economy and the improvements in technology have given rise to many ‘me-too’ barter firms that are solely internet-based looking to cash in on this lucrative industry. A quick Google search will bring up a torrent of ‘new age’ online barter clubs. On closer examination, be wary of the jumble in the internet jungle. Start-up costs for an online ‘portal’ – as most of the online-only barter clubs are – are much lower than a bricks-and-mortar barter company and the majority are merely a swap-exchange. A serious business owner needs to look towards a business-focused barter company that has new, rather than used, goods, and services that are suitable to his business.

Other important factors to consider when scouting a good barter company are the membership fees. If a barter exchange does not charge fees, chances are they are not worth joining. Any business service that has benefits to membership should feel totally justified charging a sign-up fee and fees for using the system. Usually it is the brand new start-up exchanges that have to waive initiation fees because they have no members, or the older barter companies that cannot iron out the flaws of inflated pricing and cash-barter blends.

Obviously, back in the 50s when organized bartering began, Uncle Sam wasn’t too concerned with barter, but obviously where there is money to be made, the IRS eventually get interested and wants its share. So too with the barter industry. Back in 1982, Congress passed the barter tax compliance provisions in the Tax Equity and Fiscal Responsibility Act. This landmark legislation acknowledged and equated barter exchanges with banks and credit card companies as “third party record keepers” of the financial records of other taxpayers. The IRS considers all forms of barter – whether direct or via a barter exchange – just the same as cash transactions, and all barter companies have to issue 1099b forms at the end of each tax year to members for accounting purposes.

Like any business decision, choosing the right barter company for you should be made carefully. Most good barter exchanges have active outside sales representatives that are qualified to answer most questions a business owner has. Consider the fees to join, the availability of goods and services, most importantly today, with increased competition and shrinking market share, make sure the exchange does not list you on an open directory so that your existing cash business is protected (there is nothing worse than having your top five cash-paying clients join the same barter group as you because they saw you on the list and then you lose that cash income!) There are pros and cons to privately owned and publicly traded companies too, obviously a privately owned exchange is not effected by the stock market fluctuations and less likely to go under.

Again, these are very tough and challenging times for all of us, business owners and employees alike. Barter as an economic vehicle has most certainly stood the test of time and will be around for many more millennia. Done right, barter can be an incredible boost to any business.


Shawn Cressman owns the Lehigh Valley, PA, license for MBE