Barter exchanges offer flexibility and savings
Bartering has come a long way from the simple days when farmers traded cows for crops.
Michael Allton, who runs a website design company out of his home in Chesterfield, is saving thousands of dollars on his wedding in October by bartering his web services for miniature cakes, desserts and a wedding planner he found through Craigslist.
Larry Bachman, manager of Bachman Auto Glass, repairs 30 to 40 windshields a month in exchange for radio and print advertising as well as Rams and Cardinals tickets that he gives to clients.
And Dale Schotte, owner of Park Avenue Coffee in Lafayette Square, has swapped his gooey butter cakes for new labels to rebrand his online coffee and baked good businesses.
Allton, Bachman and Schotte are among the growing number of people who are turning to bartering — the trade of goods or services without cash — as a supplemental way to do business. In doing so, they say they preserve cash flow, find new customers and make the most of their excess inventory or time.
"We’re a growing business," said Schotte, who joined a barter exchange last summer. "The economy isn’t great. To grow, you need more resources, but banks are not loaning. So this is a fantastic opportunity for us. It gives us the flexibility to buy stuff and to pay it off over time. It’s almost like a line of credit. It lets us have cash now and pay later."
There are four barter exchanges in the St. Louis area. They each have between 100 and 800 members, with some business owners belonging to more than one. The barter companies allow businesses to build up and use trade credits with other members of the group. And if the exchange belongs to a national barter association, their members can potentially barter with thousands of businesses around the country.
In modern-day bartering, though, the transaction is not completely free. To belong to a barter exchange, business owners usually have to pay a monthly membership fee that ranges from $5 to $20 a month — as well as often an annual fee that could be a couple hundred dollars.
On top of that, barter exchanges charge service fees ranging from 6 to 12 percent on the retail cost of the good or service being traded.
THE EBB AND FLOW
Richard Harris, who runs National Commercial Exchange, one of the largest local barter companies, said some of his members began dropping out before the recession because their cash had dried up and they couldn’t pay the membership fees. But these days, he is seeing a big spike in people coming into the exchange because they are realizing that bartering can help them stay afloat and move ahead during the tough economic times, he said.
"We’re seeing people we dealt with many, many years ago," he said. "They left when business got really good. But now they are calling us back."
Harris has added about 35 new businesses to his 800-business exchange since January — triple the pace of new members over this time last year, he said.
It is an upward trend that Ron Whitney, executive director of the International Reciprocal Trade Association, has been seeing all over the country. The barter exchanges that are part of his group have seen a 10 to 50 percent increase in transaction volume in the past year, he said. New members include blue-chip companies as well as young startups.
Bartering is a good way to do business in a good economy, but it makes even more sense when times are bad, Whitney said.
"The beauty of what we do is we monetize that unused capacity," he said. "So in effect we’re turning nothing into something of value. If the hotel doesn’t sell that empty room tonight, that is lost revenue that they can never regain. If they barter it, they can turn that empty room into purchasing power. You can translate that analogy to virtually everything — whether it’s an empty chair at the dentist’s office or at a restaurant savings account payday loans."
Whitney ventures that bartering is bigger than ever before — not only because of the recession, but because of the ways that technology and the Internet have made bartering more sophisticated and widespread. These days, Craigslist has a large bartering section. There also are niche sites such as bookswap.com and homeforswap.com that allow people to find others around the country to trade with.
One-on-one trades between two people can be difficult because you have to find someone who wants what you have and vice versa, and then the value of the goods or services may not be equal, said Karen Hoffman, a St. Louis veteran of the barter industry who recently wrote a book, "The Art of Barter: How to Trade for Almost Anything," with former Post-Dispatch reporter Shera Dalin.
BARTER USEFULNESS
So that is why barter exchanges can be useful, because you don’t have to directly trade with the business that uses your service but can use the trade credit at another business in the group.
"But a company just limping by wouldn’t be good for barter because they would have to pay membership fees," she said. "And if you’re doing really well — are at capacity — then you don’t have the time or need barter either."
Barter exchanges have been around since the 1950s — and in the St. Louis area, since at least the early 1980s.
"In the beginning, being a new industry, there was a learning curve," Hoffman said. "There were the charlatans and there were those with good intentions, but people without business backgrounds."
The stories of barter exchanges’ going under because they allowed members to take more than they received are fairly rare today as the industry — mostly unregulated — has matured. A couple of national associations provide a code of ethics and some guidelines on best practices.
Harris said he functioned not unlike a bank and sometimes ran credit checks on his members. And he works to make sure members do not "buy" more goods and services than they can pay back through trade.
Occasionally — once every couple of months — he will kick a business out of the exchange if there are complaints about the quality of service or if the business is inflating the price of its service.
Bachman had a bad experience with a barter exchange in another state. He had accumulated $6,000 in credit, but then could not find other businesses in the exchange he wanted to or could trade with.
"If that would have been my first experience with barter, I would have thought it is just for the birds," he said.
But he said he was glad he didn’t let that sour him because he had been very pleased working with Harris’ exchange.
Susan Steck runs St. Louis Trade Exchange — an independent franchise of the national ITEX Corp. — with her husband and daughter. Her 223 members include the River City Rascals and Funny Bone Comedy Club as well as landscapers, hairdressers, hotels, cleaning companies and radio stations. A couple of parents have even been able to trade their credits in for their children’s tuition at Lindenwood University through her exchange.
Jeff Citrin, a chiropractor, joined a barter exchange about five years ago. He gets a new client or two every month through bartering, and he then trades in the credits when his car or work computers break down. The barter exchange ends up being a form of marketing for his business.
"It gets people in the door that wouldn’t otherwise be coming in," he said. "We just today had someone in who liked it so much they were going to send their husband in tomorrow."
Filed under: finance by Wolf