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Dated: 1 February 2003
Bartering is not negotiating! Bartering is "trading" for a service, or for
the goods you want. In essence, bartering is simply buying or paying for goods
or services using something other than money (coins or government printing paper
dollars). Thus defined, bartering has been around much longer than money as
we know it today. Recent estimates indicate that at least 60 percent of companies
on the New York Stock Exchange use the principles of bartering as a standard
business practice.
Politicians barter daily to gain support for their pet projects. U.S. aircraft
manufacturers barter with foreign airlines in order to close sales on million
dollar contracts. Perhaps you have experienced at one time or another in your
life a friend saying, "Okay, that's one you owe me..." Basically, that's bartering.
Many people think of bartering as an exclusively old-fashioned means of trade.
Some would be surprised to know that today corporate bartering is a multi-billion
dollar industry. Businesses trade excess inventory for products from other businesses.
For most of us, however, our main form of trade is not bartering. Most of us
have become accustomed to using money. Long before there was money, people needed
things they didn't have; they got those things through barter. Retailers may
assume that barter is a thing of the past, but it's actually a thriving method
of business.
In developing nations, it's often the primary mode of exchange, but in the
United States barter has gained kudos and won converts because of the benefits
it can bring to business — including natural products stores. Barter is often
overlooked as a means of doing business because of misconceptions about how
it works. Retailers worry about potential tax problems and accounting hassles
that might arise from entering into barter agreements with other businesses.
However, as bartering enjoys renewed popularity, especially in these times of
tight money, high interest rates, shortage, we recently spoke with Hugh Brown,
Executive Officer of the Jamaica Trade Network.
The Trade Network represents millions of dollars in trade — and that trade
is both legal and recognized by the Revenue Department. In addition, the Trade
Network, which has several hundreds of member businesses, tracks exchanges and
takes care of paperwork as part of their fee. According to Brown, “Bartering
is a way out of a money mentality.” The Trade Network, whose members ranging
from local janitorial services and TV station to hotels, full service printers,
and communications specialists. To barter, a company only needs to locate an
exchange where barter credits are provided.
How it works A business lists a good or service for trade through the exchange.
In return, the business receives a trade credit based on the dollar value of
the good or service offered. The business can then use its trade credits to
"purchase" goods or services offered by other members. The result is that the
business is hooked up with a network of actively bartering businesses. So, for
example, a company with 15,000 square feet of extra carpet could barter for
a weekend stay at a luxury hotel for its employees. Bartering, or the concept
of “trade dollars” replaces cash transactions with trades of products or services.
The bartering networks keep track of everything, accepting a mixture of cash
and trade for their services. "We operate much like a bank," Brown said. "Members
have chequiing accounts and debit cards. We also charge fees for transactions
and for keeping track of members' accounting. When a member wants to purchase
something, he or she pays for the product or service by writing a barter cheque.
When someone makes a sale, points are credited to their barter account; when
someone makes a purchase, points are deducted. At the end of each month, members
receive statements showing their purchases and deposits." Barter places value
on human resources and not commodities, increases cash flow and buying power,
stretches resources, extends goods and services to those on low or fixed income,
taps relatively wasted talents and resources, but according to Mr. Brown it
is particularly good for business with excess capacity or extra time. “Barter
also works best for businesses that have a good cash flow,” he said, as “businesses
in trouble need to turn their dollar so getting barter dollars does no good.”
He noted that it was also suitable for small businesses that have services or
goods that are in demand.
Those with computers or advertising do well in barter, noted Brown, whose Kingston-based
association has 200 businesses in its system. Mr. Brown believes bartering has
a way of helping us identify what things are important. “When we trade our time,
talents or goods it gives us a chance to think of their value in a new light.
We also get an opportunity to look at our own skills more closely,” he said.
Bartering can even save money by eliminating mark-ups. "When you buy in a store
they have to include enough profit to pay for their rent, insurance, etc. A
barter deal tends to cut out much of the extra costs," he said.
The advantage of spending trade dollars is that companies can conserve cash
and network with like-minded businesses that might otherwise not have used their
services. Business owners say the advantages of bartering are three-fold. Firstly,
it provides tremendous cash savings. Bartering saves businesses some cash because
it's cheaper to buy things with 'trade dollars' than with cash. “Let’s take
the matter CVM television, which is a long-standing member of our network. Currently,
they are spending about $80,000 per month on security and janitorial services.
No cash has changed hands. It is all done on trade.
This represents tremendous cash savings to them, because they would have otherwise
pay for those services with scarce cash. Andrea Messam, CVM’s financial controller,
has reported that since the company has joined the trade network, it has benefited
tremendously from trading services. “The trade network has some positive effects
on our cash flow,” she said. “We have so far done an average of $1-million worth
of business through the network which provides us with security and janitorial
services, and we in turn supply advertising to other members allowing us to
maximise the use of our cash resources.
The concept is quite useful and can have a future in Jamaica.” Sam Cooper,
head of the printing company, Excell-O-Graphic, located at 135A Mountain View
Avenue in Kingston 3, said: "Whenever I need a service, I first think to call
someone in the barter. You have something in common with them, and particularly
for us, we have been able to increase print volume through bartering.” Mr. Cooper,
who has been a member of the Jamaica Trade Network for four years now, says
that the “sad part about being in a trade network in Jamaica is that there is
not many companies coming on board that provide reciprocal services.
As a printing company that does a tremendous volume of print work, we have
a high demand for paper suppliers, ink distributors, and support services for
the digital printing presses, but none of these companies are members of the
network to which I belong. We’d certainly love to pay for some of those goods
and services with trade dollars.” Mr. Brown, who along with managing director
and majority shareholder, Martel Boyce, jointly owns the eight-year-old Trade
Network, says that some member businesses used their barter dollars for big-ticket
items such as a printer, copier and fax machines.
Some have gotten print advertising, purchased business cards, and even used
their barter account for travel, hotel accommodation, and dining. Secondly,
barter provides businesses with free publicity when their services or goods
are traded. As long as a store can find other businesses that have services
it needs, argues Mr. Brown, the barter option can be useful. "Our business owners
are flexible and creative and that's why we're successful," Mr. Brown said.
Other benefits to member businesses were increased sales, offsetting of cash
expenditures. “The third benefit of barter is that it can bring in new customers.
Member businesses have gotten new customers from parishes as far away as Montego
Bay, Ocho Rios and Negril as a result of their barter exchange membership,”
said Mr. Brown, who adds that those contacts oftentimes converted into cash
contacts too. Indeed, with the belt-tightening budgets that many companies are
adapting to stay competitive, oftentimes employee perks and incentive programmes
are the first to be cut. "A lot of our clients have found that barter is the
vehicle to get these programmes back into a budget, which is yet another advantage
you don’t have outside the bartering system," Mr. Brown said. "It's challenging
for companies to come up with money to reward employees, but if they can barter
with a hotel for an empty room and turn it into a weekend getaway, then it's
a win-win situation for everybody." An executive at Half Moon in Rose Hall,
Montego Bay, believes that Jamaicans should closely examine the barter network
because it has a lot of potential. “Instead of wasting unused inventory.
why not exchange it for other goods and services?” questioned the resort’s
Richard Whitfield. “Small properties that have extra empty rooms can exchange
rooms for other services or goods like mattresses, which we traded for sometime
in 2001,” he said. “It is a little difficult to get full acceptance of the concept
now locally but it is quite successful and intense in the US and other countries.
Even though no one locally has ever formally computed the value of the bartering
economy, research has shown that it is an $8.6 billion industry involving 400,000
businesses in the United States and Canada.
It remains a complex multilateral exchange, proving to be not only a profitable
alternative to liquidation, but also a way to gain access to new markets. Further
research has shown that within the last five years, barter has become very sophisticated
in that about 65 pet cent of Fortune 500 companies that do it increase their
bottom line profits because nobody gets stuck with anything. The Institute of
Management Sciences (IMS), a local tertiary education institution that offers
courses in conjunction with several overseas-based universities, is another
of the 200 companies that uses bartering services. Winston Adams, IMS’ managing
director, says that it's “quite convenient for us because we provide higher
education and may have unused capacity in various programmes. So we trade it
for advertising and hotel accommodation, and even computers.” Concerning the
value of this “trade dollar” concept, how does it relate to a company filing
its tax returns, Brown says that “bartering occurs when you exchange goods or
services without money exchanging hands.
The goods or services exchanged have a dollar or fair market value, and this
value must be included in the income of both parties.” Companies should note
that bartering offers no tax advantages. Barter and cash transactions are the
same in the eyes of the Revenue Department: Both are taxed equally. In fact,
bartering exchanges must report goods and services sold through barter to the
Revenue Department. While trade can supplement business, Brown cautions a business
to limit how much it accepts.
He recommends calculating the value of items the company currently buys with
cash and determining what can be substituted with trade. For example, a business
spending $4,000 each month for items such as advertising, printing, accounting
and cleaning services can substitute those expenses with barter, freeing up
about $48,000 of cash a year for other purposes. Though Mr. Brown says a barter
exchange can be helpful, especially for a new business that is short on cash
flow, he cautions against allowing too high a percentage of business to take
place through barter.
He suggests a cap of 5 to 10 percent to avoid being stuck with lots of barter
dollars, which a business doesn't need. "Having 50,000 to 100,000 bucks in the
barter bank not collecting interest is futile," he cautioned. Mr. Brown suggests
doing your homework before deciding on joining barter exchanges that are available
to businesses. “A reputable exchange will offer references - including other
businesses in the same category - and clearly spell out all fees up front. In
addition, the better exchanges will make an extra effort to find a business
that matches a member's specific needs,” he concluded. Delroy A .Whyte-Hall
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