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10.4.99  
Barter Up: Where to Take a Swing at Cashless Trading
Signing up with a formal exchange finds partners who'll pay up

If you're low on cash and up for new business, bartering for goods and services can be a shrewd business move. But how do you go about it? A first step is to join a trade exchange, an organization that introduces barter-friendly businesses and allows them to trade using "barter dollars"--the currency of trade exchanges. Historically, exchanges have been geographically based for the most part, hooking up buyers and sellers locally. But the Internet is expanding the reach of the exchange, and now businesses can barter across the country or around the world. "The Internet is a tool that will create more trading, and eliminate geographic barriers," says Robin Maini, executive director of the International Reciprocal Trade Association.

Most off-line exchanges charge an annual fee of anywhere from $200 to $700. Higher fees should indicate greater spending on marketing efforts to alert members to what's on the block. Other fees normally include a monthly account maintenance charge of $10 to $20 and cash commissions to the exchange (usually split between the buyer and the seller) of about 10 to 12 percent of a transaction.

To find one of the 500 trade exchanges in North America, check with two industry associations: the National Association of Trade Exchanges (www.nate.org) and International Reciprocal Trade Association (www.irta.net). You can also look in the yellow pages under "trade exchange" or "barter exchange."

Online Barter
Two exchanges have recently migrated to the Web: Los Angeles-based Lassopower (www.lassopower.com) and Seattle-based Ubarter (www.ubarter.com). More exchanges would be on the Web if it weren't for the authentication challenge -- making sure trading parties are legitimate. With traders potentially spread around the world, it's difficult to verify that sellers actually have the goods and that their merchandise is in the shape it's supposed to be.

Timothy Fong, founder and CEO of Lassopower, says he has an answer. Lassopower.com, which opened for trading in April, has about 600 members and does about 400 on-line trades per month, generating $10,000 in monthly revenue.

To reduce the potential for fraud, businesses that join Lassopower.com become part of "trading circles," communities within the exchange formed by companies that have experience bartering with one another. Sally Ju, a Los Angeles-based graphic designer, belongs to a community that also includes a lawyer, a restaurant, an accountant, and a computer technician. "Everyone has some sort of link to each other -- they're all friends of friends." The size of these circles range from a six-pack of trading buddies to trade association and chamber of commerce communities. The idea is that when people have some connection, they're less likely to try to pull a fast one, says Fong.

But as in any sales situation, don't enter a deal blindly. Do a credit check. Though most exchange members are small businesses --many too small to have a Dun and Bradstreet credit rating -- Lassopower asks members for a credit card number to at least determine that they are credit-worthy.

At Ubarter.com, members help police barter deals by participating in on-line discussion forums. Members are reviewed and rated as trading partners. Any trading nightmares are revealed here.

An on-line barter transaction is a fairly simple process. At Ubarter.com, a business registers at the site and then posts an item for sale -- complete with description of goods, units available, and price. Next, an interested party clicks to indicate that he or she would like to buy. An email goes out to the seller and Ubarter. (If the customer doesn't have enough barter credits available, the purchase offer doesn't go through.) When a purchase offer is accepted, the seller sends both Ubarter and the customer an e-mail confirming the sale. It's that easy.

Think Locally
Yet, despite the promise of the Internet, online trading is still in its infancy; the vast majority of trades are currently executed off-line in local exchanges. "It's a community thing," says Tom McDowell, executive director of the National Association of Trade Exchanges. "People want to see, feel, and touch what they're buying."

Robert Benson, business manager at Ubarter, sees things a bit differently saying that only some trading partners, like landscapers and cleaning services, have to be local. Those dealing in commodity goods and technology-based services like web design need not be constrained by geography and can pay more attention to price.

But regardless of whether you're looking for an exchange on- or off-line, local or national, selecting a barter firm that's well run is really what you're after. Some guidelines:

  • Look at the numbers. Your barter dollars are only as good as the exchange itself, so figure out whether it will be around for a while. "We encourage people to check with the Better Business Bureau, and to pull a Dun & Bradstreet [credit report] on us," says Debbie Lombardi, president of Barter Business Unlimited, Inc., a 2,000-member exchange in Farmington, Conn.
  • Check out your new trading buddies. Do they have products or services that you can use in your business? Say you're a printer -- can you get ink or paper through the exchange? "When you can eliminate cash expenses for [barter dollars], it makes sense," says Kurt Kluznik, president of Yardmaster Inc., a Cleveland, OH-based landscape architecture firm. Yardmaster trades about $10,000 in goods and services each month through the American Trade Exchange in Cleveland.
  • Find out how the exchange promotes what's on sale. After all, if no one knows what you're selling, how can you unload it? Many exchanges broadcast faxes each week and send out monthly newsletters highlighting their members' wares. Others list sale items on web sites. Some even have regular networking events for members.
  • Ask how the exchange deals with businesses that play dirty. Many offending companies like to jack up prices, figuring they can get away with price gouging in the non-cash market. If this behavior goes unchecked, the cost of doing business on the exchange is grossly inflated. So be sure that your exchange provides references or at least access to companies that have traded with your new barter buddies before you start forking over your hard-won trade dollars (And just to be on the safe side, get several bids inside and outside the exchange to see whether prices in your trading community are competitive). If one of your new trading pals turns out to be a louse, the exchange should remove the unscrupulous vendor. "Most exchanges have a 'three strikes and you're out' policy," says the National Association of Trade Exchanges' McDowell.
  • Be sure the exchange is on the level. The last thing a cash-starved company needs is to join a trade group bent on converting its members' hard-currency customers into barter customers, says Lombardi of Barter Business Unlimited, Inc. And what will surly undo the benefits of barter is a trade exchange that plays fast and loose with its credit. Yardmaster's Kluznik, for example, left an exchange that allowed members to make purchases before they had enough barter credits to cover the deal. The problem? Inflation -- too many barter credits, and not enough goods to meet demand.
  • Talk with members. Ask them how long they have been in the exchange, how active they are, and are they satisfied with the exchange. If your trading buddies are satisfied with the exchange, chances are you will be, too.

By Karen M. Kroll

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