In Cash-Conscious Era, Bartering Favors the Small

It’s not for everyone, but trading for goods or services can ease the crunch.

By David Fling

Business people have been trading goods and services for centuries. Frontier fur trappers traded furs for salt, gun powder, flour and other necessities. They seldom exchanged cash—there was just no reason for it. Trading was just the best way to conduct commerce.

With the COVID-19 plague upon us, there has been an in-crease in trading among businesses. Why? Because cash money has been hard to come by for many, especially for restaurants and businesses requiring lots of personal contact. Their income has taken a dive but their cash outlay continues.

This has made bartering between businesses an extremely valuable way to save cash and survive this time in U.S history. The trading that fur traders were involved with is called a “direct trade,” and finding direct trades has always been difficult and time consuming. After all, the person you want to trade with may not need what you have to offer.

Skip forward to today’s new bartering/trading. Many business owners use trade clearing-houses; more commonly called trade exchanges. A trade exchange is similar to a bank that also helps its members sell stuff. Each member of a trade exchange has the equivalent of a checking account that is either debited or credited, accordingly, every time the member buys or sells.

Putting the Exchange to Work

The job of the exchange is to facilitate trading so that members don’t have to find direct trades. For example: a jeweler may sell a watch to another member who is a car dealer. The jewelers’ trade account is credited the price of the watch, but with the barter money gained from the sale of the watch, the jeweler does not have to purchase a car. The jeweler can purchase anything from any other barter member: a Web site, printing, signage, travel or whatever they would like. Each member sells goods or services at full retail price, and any valid trade exchange complies with all IRS regulations regarding barter. There is even a specific, end of year, IRS form for trading income. Barter is taxed at the same rate as cash.

A trade exchange has a second primary function: it also elicits trading between its members. A good trade exchange consistently promotes and advertises its members to each other.

Also, any member of a trade exchange should be able to call the exchange and talk to a “trade broker” and request a specific item, whether that be a printer, web design or advertising, or T-shirts for a sponsored baseball team etc. It is then the trade brokers’ job to find that specific item among the other members.

Privately owned businesses, mom-and-pop establishments and self-employed people are more likely to realize the benefits of barter trading.

This second function of the trade exchange is extremely valuable. It means that the trade brokers spend their time bringing members new business. Remember, if you have one of the aforementioned items, the web design, the T-shirts etc., your trade broker just called you with new business from another member; business that you would not have had if you had not been a member of the trade exchange.

But this time, you get paid in barter money. Every member of a trade exchange spends time pursuing cash jobs like everyone else does, but the trade brokers call them.

Every trade exchange charges a percentage of the transactions in cash; they have their employees and bills to pay, too. It’s usually 6 percent of a purchase and 6 percent of a sale; 12 percent for the trade amounts that cross through the exchange. (If that scares you away, then consider what an additional sales person would cost you, and a 12 percent trade-exchange fee starts to look pretty good.)

Here is a good COVID-19 example: A Tulsa bakery, called Cookiedoodle, traded inventory on a barter system for some badly needed vinyl gloves from another trading member, Bio Tech in Oklahoma City. Business volume had dropped considerably at the bakery, but the need for the gloves remained. Trading for them became a good way to keep their valuable cash and still get the gloves.

Historically, during good times, cash is always preferred, but during a recession barter becomes much more valuable. And during this unbelievable time period in 2020, barter has become a life-line for many businesses. Trade exchanges aren’t for everyone. Large corporations seldom trade. It’s just too complicated to teach their employees on how to take anything but cash.

Privately owned businesses, mom-and-pop establishments and self-em-ployed people, however, are more likely to realize the benefits of barter trading.

About the author

David Fling is a broker with Itex, with offices in Overland Park, Kan.

P | 918.298.2266

E | david.fling@itex.net