Back to barter: A solution for struggling area businesses
Everything old is new again. As business bottomed out as a result of COVID-19, the oldest form of trade -- barter -- was booming. However, this is not your father's direct trade barter model. And that makes it even more appealing to cash-strapped businesses now.
Business to business trading has been providing an alternative method of payment that conserves cash, attracts new customers and gives businesses an advantage.
During times of crisis, online business flourishes. It happened during the 2008 recession, and it's happening now.
The reason is simple: By trading their unused capacity and/or surplus products, stalled businesses generate another revenue source, reduce costs and purchase necessities without spending cash.
Today's economic downturn has forced many businesses to pause activities like buying ad campaigns, increasing employee health benefits and expanding office facilities. But companies that barter don't have to hold off. Trade provides buying power businesses need to grow, especially now, when creditors come calling.
How modern trade commerce works
In its oldest, simplest form, bartering involved an equal trade: One person or business swapped goods or services for something in return. Modern trade doesn't work that way.
A professional barter organization is actually a financial services firm. Acting as a third party, it facilitates transactions between businesses by using trade dollars, its monetary unit of currency. Companies aligned with a trade organization set prices -- in trade dollars -- for their products and services; other members of the network pay in kind through a payment platform. Businesses pay a monthly membership charge, plus a modest fee per transaction.
Clientele may include retail and e-commerce companies that sell B2C and B2B products, service companies (contractors, auto repair shops, computer technicians), hotels and restaurants, professional service providers (dentists, attorneys, accountants), business consultants and more. In short businesses can find virtually anything they might need.
When they welcome this new revenue stream as an accepted payment method, member businesses are in complete control of how -- and how much -- they trade. Companies can set the maximum volume of trade dollars they'll accept per month, or elect to not market themselves during peak cash seasons. Within this closed monetary network, businesses can budget accurately; although, right now, some welcome every trade dollar.
As far as tax implications, the IRS treats barter transactions like cash, and transactions are reported accordingly. At the end of the year, the trade organization provides each member with Form 1099B.
How trade commerce can help businesses
Opening a trade account offers businesses of all sizes several unique advantages. For example, a barter organization:
• Provides a broad new marketplace for attracting new customers.
• Allows companies to sell their products at full price -- no need to discount prices online or liquidate slow-moving stock.
• Creates work for employees, so they needn't be laid off or furloughed again.
• Allows companies to purchase needed supplies and services without dipping into precious cash reserves.
• Some active members generate as much as 10% of their annual revenue though trade.
That may be a way off for some. But for businesses looking to generate activity, getting into barter is a great place to start.
• John Strabley is the CEO of IMS (International Monetary System) www.IMSbarter.com, in Niles.