Bartercard and IRTA were recently featured in a great post from Guardian News on how businesses are using barter.
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How businesses are using barter to save cash
Barter has been going on for thousands of years, but as Mark Williams, managing director of trading platform Bartercard UK puts it, “gone are the days when you swapped a sheep for a goat”.
New technology, Williams explains, means the potential of barter is expanding fast: it’s no longer about one business swapping its products on an ad hoc basis: instead a company may barter across a diverse range of sectors, including internationally – and receive substantial value back in return.
If you’re an office furniture business, for example, and have some stock left over, it can be hard to find a taker for the last few chairs and desks. As members of a barter scheme, such as Bartercard, the furniture business will sell the chairs at the retail price for “trade pounds”, which have the same value as sterling. It then gets to spend the pounds it has earned on other items within the membership group. This might be restaurant meals, accountancy advice, tickets for the races or nights in a fancy hotel.
In this way, barter has the potential to free up a company’s cashflow, even out the peaks and troughs of demand and squeeze more value out of goods or services that wouldn’t otherwise be sold.
“We’re not there to take away any of the current cash business, but to sit alongside it,” Williams says.
It’s a sector that is growing quickly. Bartercard’s UK franchise, the business started in Australia 25 years ago and now operates globally, has more than 2,000 members and hopes to reach 20,000 within five years.
According to the US-based International Reciprocal Trade Association’s president and CEO Ron Whitney, the UK’s organised barter sector is one of the fastest growing in the world. “The only limitation to barter industry growth is lack of awareness of the benefits in the business community,” he says. “However, barter awareness is definitely on an upswing.”
If a business has any degree of unused capacity, in the form of time or inventory “you should use a barter strategy to maximise your business’s sales capacity,” says Whitney. “Additionally, barter exchanges provide a built-in new market for startup companies to sell to and buy from. Participation in a barter exchange can provide an important jumpstart for new businesses.”
In York, Hedley House hotel owner Greg Harrand says barter has taken some of the anxiety out of the seasonal hospitality business.
“If I don’t sell a night tonight, that’s gone; I can’t sell that night again,” he says. Hedley House is full every weekend and on race days and bank holidays, but if there’s spare capacity mid-week, which Harrand knows is likely at certain times of year, it’s far better for him to earn trade pounds than see no value from those rooms at all.
Harrand has used his trade pounds to pay a local carpet cleaner, to buy bacon and sausages from a local butcher who’s a fellow Bartercard member, and even to reward staff who’ve done a good job. “One of my managers is a Manchester United fan, and I gave him £1,500 of football tickets, which you actually wouldn’t have been able to buy in the cash world, but were available to Bartercard members,” he says. “That meant a lot to him [and] the actual cost to me was around £150 [because of the cost price of the unsold rooms he traded on the platform].”
Exploring new markets
Rob Marsden, who owns multi-sensory branding firm IOH Branding, says he’s traded around £1.5m worth of goods in the 17 years he’s been a Bartercard member. He’s also found a whole new group of customers through the scheme.
“They guarantee that they will get you leads, and so it’s business we wouldn’t have found elsewhere,” Marsden says. “People say ‘we’d rather have cash’ … but most businesses have some surplus, and using this system you always sell at retail to maintain the margins.”
In theory, businesses can barter virtually anything: tattoos, physiotherapy, boats and even houses have been traded via the barter system. It’s also seen as a credible way of doing business by governments and multinationals. An example from the 90s saw Pepsi sign a $3bn deal with the Soviet Union, bartering its soft-drink syrup for vodka and freight ships.
Ideally, where small and medium-sized businesses are involved, you need a critical mass of members in a geographical area. “If you go town by town, building up to 250 members, it really starts to work,” says Williams.
However, while swapping a goat for a sheep doesn’t involve anything more than a handshake, at this rather more sophisticated level, there there are costs – though not necessarily always cash – involved. Astus UK, for example, helps companies secure media space by negotiating access to, and then bartering, goods and services needed by large broadcasters. It operates at a very large scale and opts not to charge businesses to take part. Instead it invests in certain suppliers, and rather than requiring a monetary dividend return, asks for “capacity” which is then used in exchanges that are part-barter and part-cash.
“A broadcaster might give us a million pounds worth of airtime, and get back a million pounds worth of outdoor [advertising] space,” says David Jones, managing director of Astus. “It gives a significant cashflow benefit.”
In contrast, Bartercard members pay a monthly fee in both cash and trade pounds, plus a percentage on every sale. It also extends a line of interest-free credit, that increases with each level of membership.
While cash will always be king, using up spare stock or capacity offers businesses a helpful way to keep their balance in the black, and comes into its own when there’s a capital expenditure in the offing or ongoing costs that have to be stumped up. “Last month we moved offices,” says Marsden, “and I got all our furniture and carpet on trade pounds. It would have cost £20,000 in cash.”
He believes that having the option to barter has made his company healthier, reduced overheads and resulted in new cash business. “We always look at Bartercard options before buying elsewhere,” he says. “We can’t always do it, but we always look there first.”