Benefits of Bartering
What are the benefits?
Bartering is a great way to take advantage of underused resources in a business. Here are some of the benefits of joining a bartering network. For more information about joining a bartering network see what Viatrade has to offer
One advantage to bartering is flexibility. You can trade one related product for another — such as a laptop for a portable tablet — or two completely different items — like a television for a lawn mower. You can even save money on travel by trading homes, allowing friends to stay in your residence while you borrow their cottage or house for recreation or proximity. Alternately, you might not even have to part with material possessions, offering maintenance, construction or other services in exchange for material goods or other assistance. Of course, there is the clear advantage of saving money. Not only do you get something you need or want, but neither party has to spend a cent.
A barter arrangement’s most obvious value is in significant cash savings, as well as reduced financial paperwork — but there’s more. Bartering also:
- Generates sales/profits with faster inventory and service-hour turnover
- Creates new customers by bringing together parties who may refer others
- Moves surplus stock
- Eliminates additional advertising and deep discounts
Employee compensation Small business enterprises are often strapped for cash when it comes to providing bonuses or perks to their employees, but barter exchanges are a potential avenue for companies that want to reward their workforce in some way. For example, some companies have established system within barter network so that employees can choose rewards from the offerings of other exchange members (within certain financial limits, of course). Under these arrangements, business owners set up “subaccounts” for individual employees to which barter credits owned by the business can be transferred. Employees thus have the opportunity to spend those credits anywhere in the exchange as they see fit.
Make use of excess inventory and used equipment Barter exchanges are often ideally suited for companies who want to unload excess inventory or old equipment (machinery, office furniture, etc.) while at the same time realizing some financial benefit. They can unload their extraneous goods and equipment in exchange for credits that can be used to procure valuable goods and services from other network members.
Business Travel Increasing numbers of small business owners are using bartering as a way to cut down on costs associated with business travel, especially as the number of lodging facilities engaged in bartering practices continues to grow.
Debt Collection Groenwald noted that small businesses often depend on prompt debt collection to maintain their very viability, “yet using an attorney or commercial service for collections takes both time and money, and writing off the debt is a no-win situation.” Instead, she pointed out that many small business owners have begun to offer debtors the option of paying in merchandise or services, which are subsequently sold on the barter network with the credit going to the small business that would otherwise have been unable to collect anything. “In effect, the trade credits are equal to receiving the original debt in cash,” wrote Small Business Reports contributor Susan Groenwald. Some of this value is sacrificed to network transaction fees, but small businesses willing to use this option still receive a healthy percentage of the amount owed them.
Expand Customer Base Barter exchanges are a potentially valuable tool for small businesses to contact and acquire new customers/clients. Many barter relationships eventually blossom into full-fledged cash business arrangements, as the companies in question develop trust and respect for one another.
Line of Credit Bartering networks can also serve as an alternative to more traditional means of financing for small businesses. “With this financing strategy, the barter network advances a set amount of trade dollars to your company against its projected future sales,” said Groenwald. “Generally, the barter network [will] determine the trade-dollar amount your company is likely to earn back in a one-year period and base the advance on that amount.” In addition, Groenwald pointed out that the interest that is charged on the line of credit may be paid in trade.
Cash Savings Barter exchanges enable small business owners to keep greater amounts of cash on reserve, an especially important consideration for new businesses.
Retain Customer Loyalty – When one business is connected to another through barter exchange, the two businesses are connected by a network. Businesses that routinely trade for products and services will bypass competitors to deal with each other.
Improve Inventory Management – Bartering also allows you to improve inventory management by converting excess inventory into valuable products and services. If you barter, you avoid having to liquidate excess inventory through drastic discounting. If your small business experiences seasonal markets, barter provides a profitable way to use the inventory on a regular basis. Bartering provides a system to put that excess to use in profitable ways. Bartering accomplishes this objective by matching your products or services with businesses looking to purchase them on trade.
Develop Incremental Revenue – Businesses with obsolete or idle inventory frequently find that bartering the assets yields a much better value than liquidating it for cents on the dollar. Instead, the company can sell the inventory to a barter member for trade credits close to the book value, and then apply those credits to other business expenses, such as marketing, entertainment, travel or raw materials. Exchanging an unwanted asset for something else of value helps recover a significant amount of incremental revenue that might otherwise have been lost.