Commercial Barter

It is estimated that about a half a million business firms will use the services of
commercial barter companies this year. That number is growing as commercial
exchanges and corporate trade companies report increasing membership and
increasing trading among members.

What explains this impressive growth? First, technology makes it possible to
track countless barter transactions very easily. In not so modern times,
transaction had to be done by hand. For instance, John Hancock’s uncle, a
minister by profession, is one of those early bookkeepers who recorded
commercial trades of rum and whale oil in exchange for the wheat and furs of
the early frontier. If the computer had been available then, our monetary
history would certainly have been different.

The growing appeal among business owners and professional firms to reciprocal
trade is attributable to several factors, which include generation of new sales and
higher volumes of business, conserving cash for essential expenditures, exchange
of unproductive assets for valuable products or services, reduction of unit costs,
and opening new outlets for excess inventory and unused capacity. Reciprocal
trade finance enables a firm to buy using its incremental cost of production.
This applies to international trade as well. So long as incremental revenue exceeds
incremental cost, it is worth it for a firm to trade using a barter exchange. If you’re
not sure if this is for you, visit the News & Resources area of this site and take our
short test on Is Barter For You?

One challenge with reciprocal trade in a barter exchange is the potential limitation
on the range of products or services offered in trade which varies from exchange
to exchange. It should be noted that more and more exchanges are members of
international trading networks that provide them with opportunities to access larger,
global marketplaces to buy and sell within using trade credits. The Universal
Currency or "UC" is one such network.

The existence of surplus inventory, unproductive assets, and excess capacity
throughout the world, and the ability to reach new customers both at home and
abroad through reciprocal arrangements, makes exchanging through barter an
attractive marketing tool that yields a competitive edge over firms that only use
cash. Incremental sales from reciprocal trade transactions add to employment,
production and purchasing power. Asset exchange enables a firm to capitalize
its excess capacity by using it to finance its purchases. By exchanging surplus
assets for needed products or services obtainable from a trade exchange, business
firms are able to obtain a higher value for such assets than if they sold them for cash
at a few cents on the dollar.

There are approximately 600 commercial and corporate barter companies serving
all parts of the world. As they are linked electronically in a national and international
barter marketplace, their economic significance is growing. Commercial exchanges
make money by charging a commission on each transaction done. Corporate trade
companies make money by negotiating favorable prices for media and other products
and services, and exchanging these for the excess assets of their clients plus cash.

Reciprocal trade also helps check inflation by spreading overhead, lowering costs,
and reduced borrowing. It makes good economic sense for businesses to purchase
media, printing, and other needed items with their trade credits because financing
such purchases through incremental sales of their own inventory or exchanging
unwanted assets is cheaper than borrowing. Reciprocal trade helps conserve cash,
and lowers interest rates by taking the pressure off money markets. The reciprocal
trade industry helps firms stay competitive by turning surplus inventory, unproductive
assets, and excess capacity into extra sales, income, and value.

Reciprocal trade enables international trade to flow among established exchanges
in North America, Australasia, Western Europe and the Middle East. Reciprocal
trade finance permits importing when conventional finance will not work, while
providing overseas marketing and distribution channels that exporters need for their
surplus inventories.
Corporate trade companies are increasingly obtaining media for multinational firms
to implement global advertising plans. Reciprocal trade companies execute
international transactions to enable exporters to be paid in hard currency through
the liquidation of goods received in trade from soft currency countries. The dance
of currencies in international finance, plus national needs that exceed the availability
of hard currency through conventional trade and aid, makes reciprocal trading a
growing field today.

Commercial barter is a young industry, roughly 25 years old, run by a strong group
of entrepreneurs. The leading members of the industry are joined together in the
International Reciprocal Trade Association, which has branches in Europe and
Australasia. It was this group that worked with the U.S. Congress to pass the barter
tax compliance provisions of the Tax Equity and Fiscal Responsibility Act of 1982
(TEFRA) The same law recognized barter exchanges on a par with banks and credit
card companies as “third party record-keepers” of the financial records of other
taxpayers. All U.S. barter exchanges now submit to the tax authorities yearly total
of the barter sales of their clients.