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.