A transaction that doesn’t require money but still enables the exchange of goods/services and runs the economy is the barter system. Although a primitive exchange model, barter is still very much relevant today. If I had to give a very recent example, it would be the surge of barter exchanges in Argentina due to the higher inflation rate. With the inflation rate nearing 100% and the poverty rate reaching 40%, Argentina’s economy has clashed completely. The people of Argentina today are managing their daily lives thanks to bartering.
Bartering doesn’t require money; hence it can sustain any calamity or economic crisis. Apart from being a great system to help us survive without money, it is an excellent method to save and make more money.
If you are interested in bartering as a side income or your primary source of income, exchanging things with corporates is bound to give you more profit. If you are a business, you must try bartering goods and services with other companies. It helps you save a lot of money and increase overall ROI.
Get yourself a cup of coffee and continue reading to learn more about the barter system and some barter products you can exchange with a corporate business.
What is a barter system?
Let’s start with some basics.
If I had to say it in one line, bartering is a system of equal exchange of goods and services without the involvement of money. It is that simple.
Characteristics of the barter system
Here are some characteristics of the barter system followed in ancient times. Some of the characteristics have changed in the modern barter system, which we will discuss in the next segment.
Bilateral
The initial form of the barter system included only the two parties that exchanged goods. Modern systems also offer multilateral bartering with the help of a barter exchange.
Mutual understanding
The foundation of such exchanges was mutual trust and understanding between the two parties because no third party regulates the exchange. If you produce flour, for instance, you might be interested in trading flour for meat. Nobody will argue that trading 1 kg of meat for 1 kg of flour is an unfair exchange. However, the trade may go through if you still need meat and have extra flour at home. You both mutually decided that the deal was fair.
Coincidence of wants
For a barter exchange to happen, you need to find someone who has what you need and needs what you have. Striking this coincidence is not possible all the time. What if the local meat shop doesn’t want flour in exchange? You’ll have to find some other meat seller in your town or the neighboring town.
Parties trade goods without money
There are no currencies involved in bartering. You only need to trade the money for commodities under our modern monetary system, where everything has a monetary value.
However, money has no role to play when bartering. Both parties must align their needs and wants to acquire the goods they need.
No concentration of power
The barter system is not quite like a regular market. The system is completely different from free economies, even if there is no involvement of the government. It doesn’t just depend on demand and supply. People acquire what they need with the things they have or produce. They don’t produce more of something because it is in demand.
Additionally, a person can only produce/acquire a limited amount of stuff because storing takes up a lot of space. As a result, barter systems prevent the accumulation of power by a single individual.
Exchange of goods and services
Three types of exchanges can happen in a barter system.
1. Goods for goods
E.g., Exchanging flour and meat
2. Goods for service
E.g., Mowing the field for a jar of milk
3. Service for service
E.g., Cleaning the house for a medical consultation
Happens only in a community
Bartering can happen only in the same village, town, or community. It is impossible to make a deal with someone from a different city. Considering the time when people used this system, trading within the community worked well. This wasn’t really a disadvantage for them.
Flaws In The Old Barter System
In ancient times, before we started using currencies, people exchanged stuff they produced to acquire other essentials. Bartering was feasible at that time because our needs were very basic.
However, it goes without saying that the system had many flaws, like the ones below.
Some flaws in the old barter system are:
- The coincidence of wants is only possible sometimes. It is very difficult to find someone with what you need and who is willing to exchange it for something you have.
- There is a greater chance of one party getting exploited because no governing body decides the worth of items exchanged.
- If they traded with people outside their village, they would have had more trading options.
Therefore the need for developing currencies became apparent. Everything has a monetary value in the monetary system, and people exchange goods and services for currencies.
The flaws mentioned above, however, are beautifully answered by the modern barter systems. Let us take a look at the modern barter system.
Modern barter system
Modern barter system mostly runs on the internet, allowing people from all over the globe to trade goods and services with each other. Moreover, they have established a system of trade coins which eliminates the need for establishing a coincidence of wants. Each barter exchange also has rules and regulations to allow fair trade. All these changes have enabled the modern barter system to tackle the main issues of the primitive barter system.
Two ways of bartering
Currently, you have two ways to barter your goods and services-
Direct barter
Direct barter is a method similar to the old barter system, which requires a coincidence of wants and is done only within a small community. It involves mutual understanding and negotiation in the barter process.
Generally, businesses that rely on each other’s services tend to use this method. For example, you are a cab delivery service. A big advertising agency offers you a barter deal. Your cab drivers will pick up and drop off their employees; in return, the agency helps you market your business. The fair market value of the number of rides you do and the marketing service would be the same.
Direct barter doesn’t always have to be bilateral. Sometimes more than two parties are involved in the bartering transactions.
You’ll usually come across long-term contracts in direct barter rather than a one-time deal. Businesses have to think about the offer very carefully before making the contract.
Barter exchange or using trade coins
Another method used in modern barter systems is using trade coins in a barter exchange. Before we understand how this method works, let us see what trade coins are and what a barter exchange is.
Trade coins:
In the barter system, there is no way to establish the value of the barter transaction. Remember the example we discussed earlier. Is the price of 1kg of meat the same as 1 kg of flour? The modern barter system uses trade coins to avoid unfair deals and the need to establish a coincidence of wants.
You exchange the trade coins or barter coins to acquire goods and services. So to get 1kg of meat, you’ll have to give the equivalent amount of trade coins, not the flour. Sometimes it’s difficult to determine if an “equal” exchange has happened. Trade coins help keep things fair.
Additionally, they make bartering convenient. You don’t have to look for someone willing to buy your flour for meat. You can simply put up your offering, sell it for barter coins and use those barter coins to get the meat.
Here, meat and flour were used to keep things simple. However, in the real world, people exchange goods for trade coins to use those goods for their business. Bartering is no more about satisfying your basic needs. It has become a good opportunity for companies to make more profit.
Barter exchange
Among the three limitations of the barter system, we saw that the old barter system allowed people to exchange goods only within the community. A barter exchange is an excellent solution to that problem.
A barter exchange is where businesses from any place in the world can offer their goods and services to other members. You are no more limited to exchanging goods within a particular radius.
Barter exchange has opened up a wholly unseen and unheard market for you. Each barter exchange has a set of rules that all members have to follow. Moreover, you can barter only with the members of the barter exchange.
To barter things on an exchange, you have to be a member of the exchange. To become a member, you have to pay some fees. These fees also cover the cost of managing your account. What do I mean by managing? The barter system notes all your transactions on the exchange as the bank does. This will save you a lot of time while reporting the tax.
Once you become a member, you can exchange your services and products. Accept any offer you like and receive trade coins in return. You can use these trade coins to acquire something your business needs from another business on the barter exchange.
This is how the modern barter system functions, and by doing so, it resolves many problems people had with the older barter system. With the current barter system, bartering holds the power of co-existing with the international monetary systems.
There is another thing you’ll find in the bartering industry called time banking. Just like you exchange an equal amount of goods and services in the barter system, time banking refers to an equal exchange of time. Here the value of service doesn’t have to be equal. For example, I’ll take care of your kid for two hours, and you have to teach me how to paint for two hours. Time is all that matters in time banking.
Benefits of the modern barter system
The barter system has become so efficient that it offers many benefits. Here are some benefits you can enjoy by bartering things-
Save your working capital.
Apart from production, there are so many things that a company has to do, like marketing, training, PR, employee benefits, etc. A part of your working capital goes into all these operations. You can save this money by bartering these services. You can even barter some raw materials.
Increase ROI
You might have figured this out on your own. As cost decreases, the ROI immediately increases. But there is more that barter can do to contribute to your ROI. If you have unsold items, you can barter them to acquire something that helps you in production. You are reducing the amount of product that goes into the dumping yard.
Deal with poor inventory management
Poor inventory management leads to issues like excess inventory. Thanks to the barter system, liquidation is not the only option to deal with excess inventory. You can earn a lot of trade coins by selling the product on barter exchange.
Get clients
Nobody intended to give people this benefit when developing the modern barter system, so you can call it an additional perk. There are many businesses on barter exchanges. You can find your new B2B client on the barter system.
Get the best out of a poor sales result.
When life gives you lemons, you make lemonade. This statement holds true, at least for businesses that use a barter system. Poor sales can be a result of a million factors. There is not much you can do about the poor response from the audience. But this doesn’t mean this year your revenue graph will drop. Try offering your service on the barter exchange and use the trade coins you earn to reduce your production cost. This way, you can still make a profit even with poor sales. And, as I mentioned before, if you manage to get a client, it is an absolute victory for you.
More trading opportunities
With a barter exchange, you can find businesses outside your community to make a deal with.
Convenience
Online barter exchanges are a hundred times more convenient than the older system. You use the internet to find a business you can barter with and acquire things without a coincidence of wants from the comfort of your home. How much more convenient can this get?
Can sustain in economic crisis
Remember the example of Argentina’s economic crisis? The price of things might increase when a crisis happens, and ordinary people and small businesses suffer a lot. Since bartering doesn’t involve money, you can continue your daily life. It can withstand any adversities.
Alright now. Do you need more reasons to fall in love with bartering? I hope you are convinced. But there is something more you need to know. Did you know barter transactions are now taxed?
Tax implications of bartering
The Internal Revenue Service expects you to report all barter transactions. All barter transactions (direct or via barter exchange) are taxed in three ways-
Income tax
Think about this. If you sold the unsold inventory in a normal market, you would have enjoyed a good amount of US dollars. It is very fair that income tax is applicable to barter transactions.
Capital gains tax
Capital gains tax applies to the profits businesses earn. If the barter transaction contributed to your profit, you’d be liable to give a certain percentage of that profit to the government as capital gains tax.
Self-employment tax
Bartering is not just a method to get rid of your excess inventory. You can make a considerable amount of profit by exchanging your services. Individuals and small businesses with more than $400 income will have to pay the self-employment tax.
Now that we have touched upon all the basic things one should know regarding the barter system, it is time to deal with today’s main topic of discussion- corporate barter and the things you can use for bartering.
What is corporate barter?
Corporate bartering is the process through which two businesses trade goods and services. A lot of businesses have certain unneeded or undesirable assets. These assets include unsold stock, equipment, or property investment. The business may have inactive assets due to inadequate service delivery, sudden drop in demand, mismanagement of inventory, or other issues. Most of the time, selling the assets would result in the company suffering a substantial financial loss because they would only be worth a small portion of their purchase price. Employing a corporate barter is frequently a preferable option to avoid it.
A real-life example of corporate barter is the contract between Pepsi and the Soviets. It was a barter contract worth $3 billion. Pepsico handed the Soviet $3 billion worth of Pepsi Concentrated in return for $3 billion worth of Russian vodka that was being launched into the American market. The contract was made to last for 10 years- from 1990 to 2000. It is a great example of a barter transaction between two corporations.
Although corporate barter usually involves two businesses, the introduction of barter exchanges has given a chance to individuals to try bartering with corporates.
You cannot exchange anything in a corporate barter. Whether you are a business or an individual, you should know things you can and cannot barter. Thanks to barter exchanges, you don’t have to wait for a coincidence of wants to happen, but you still have to think about what you can put up for barter and what you cannot.
Let me help you with some products and services that can be bartered into a corporate business.
Things you can barter into a corporate business
There are ample products and services that you can barter into a corporate business. Before deciding on the product or service, you want to trade, you should consider its demand. What are the chances you’ll get at least 3-4 offers on your product or service? Something like an accountancy service will get you more offers since all sorts of businesses need it.
After that small piece of advice, without any further ado, we’ll look at some examples.
Accounting Service
All businesses have to deal with financials. It could be taxes or anything else related to finance. If you are an accounting firm or a freelance accountant, you can offer some of your services that aren’t doing satisfactorily on the barter exchange.
Real estate
Everyone is looking for space to live or build an office, from the general public to corporations. In cities, there are more people and less space. You can look into real estate bartering if you have a property that isn’t attracting many customers. You can either ask for a service in exchange, which would be a direct barter, or exchange it for trade coins.
Ad Space
It is a very common type of barter transaction between two ad agencies. Agencies exchange ad space or some other service in exchange for the ad space. They could also make a deal with other businesses. For example, a cleaning service. Agencies can help them with online marketing, and in exchange, the cleaning service will extend its services in their office.
Writing and editing services
Corporations must do a lot of writing – newsletters, websites, blogs, internal memos, and whatnot. If your business offers writing services, try your luck at a barter exchange. You could earn some trade coins and acquire things to run your business smoothly.
Graphic design
Corporations need a designer to maintain their brand identity with visuals. Moreover, brands now have different social media accounts with engaging content to manage. The skill is very much in-demand, and you can find your new clients on the barter exchange.
Website Designing
All businesses need to have a website. It is a must-have in the current world. Had fewer clients this year? Are you getting any new leads? Try your luck on barter exchange. Attract businesses that need your services and increase your profits.
Attorney
Every corporation requires attorney services. Legal documentation in a corporation doesn’t end. With every new contract, there are a set of papers they have to prepare. You might also find individuals on a barter exchange looking for a lawyer.
Cleaning and maintenance services
Whether the company is making money or not, it cannot do without a hygienic office. You can try offering some of your cleaning services to a business whose products or services are required for your business.
Types of equipment
If you are an equipment manufacturer or retailer, you can barter off your unsold inventory. For example, a business like gardening needs a mowing machine, scissors, sprinklers, etc. If you are someone who sells or produces this equipment, you can find a gardening service to barter it with.
Technological devices
Technological devices are updated every now and then. New versions of the same thing are developed by businesses to offer variety to their customers. Your unsold inventory will have to be dismantled and reused after a few years. Why not barter it? Laptops, headphones, mics, mobiles, etc., are some devices all corporations need. If you are a mobile phone seller, find a business that provides mobile phones to its employees like Uber does for its cab drivers.
Office Stationery
Let’s say you are an office stationery manufacturer. You can barter some of the excess stock with a business owner whose service or product is useful to your business. For example, you can barter with an ad agency and get marketing services in return.
Cab services
Many big companies provide pick-up and drop services to their employees. If you are a cab service and your business is running slow, you can barter your services for other products.
Process of bartering products and services
There is no fixed process of bartering. But if you do need some direction, we’ll discuss a basic process.
Bartering is a simple process and can be done in 3 easy steps.
Step 1: Choose your product
To begin with, you have to choose the product or service that you want to barter. We just saw some brilliant examples of things you can barter. You can take inspiration from those examples and decide what you want to barter.
Step 2: Find online bartering websites or join a barter exchange
There are many online barter websites where bartering deals are made. You can take help from these websites or join a barter exchange. Put up your offering, or search for something you want to acquire on these websites.
Step 3: Seal the Deal
Choose from the offers you are being presented, negotiate the value of the deal, and close the deal.
Bottom Line
The barter economy is huge. According to the International Reciprocal Trade Association, the value of barter transactions is close to 12-14 billion dollars (annually). The popularity of the barter system is thanks to the new improvements in the way bartering is carried out today. Both businesses and corporations have an equal chance of earning profits on barter exchange. Try being part of a barter exchange, and you can certainly see the change in your ROI.