Barter: How Does Barter Work?

Barter, it's a hot-topic these days and all over the news because of the uncertain economy and rising unemployment. This post accompanies a sister article I wrote earlier: Barter: What is Barter Exactly? and will hopefully fill in some extra blanks in your knowledge-gap. To avoid repitition, if you don't know what barter is, I suggest you read that post first, then read this one.

Barter is not only the oldest and most proven form of commerce, it is most likely the simplest. Prior to highly-organized national companies, like Merchants Barter Exchange, that makes bartering extremely easy and effective for their members, barter (or trading, as it is otherwise known) dealt predominently with small amounts/ transactions (usually well below $400.) For simplicity's sake, I shall stick to individual, or one-to-one barter in this post, and save a discussion about barter exchanges for another.

"A dollar saved is a dollar earned," as the saying goes. This is something barter is exceptionally good at helping you do, and because it doesn't involve money, it is a great method to either improve cash flow, or to conserve your cash.

A number of factors have to be present in order for a 'trade' to work:

1. You have to have a need (for a good or service)
2. You must be able to offer something else of value in exchange
3. There needs to be another party offering what you need
4. The other party must want what you are offering, and
5. The timing and quantity must match

Because of this seemingly insurmountable list of requirements, very often it is just easier to spend cash, and is the reason for monetary systems' popularity (and the need for companies like Merchants Barter Exchange.) For this reason, the vast majority of independent trades happen by accident - or increasingly via the likes of Craigslist in their "barter" section.

Let us use an example to demonstrate how barter works, if the five criteria above are fulfilled. Patricia is a stay-at-home mom that has a strong talent for making very nice cakes. She needs some curtains for her windows. On chatting to a neighbor - who just so happens to be a very competent seamstress - she discovers her daughter is getting married and needs a wedding cake made. In this barter situation, Patricia offers to make the wedding cake in exchange for her neighbor making the curtains. It's a win-win, both save the cash expense involved, or the hassle of trying to do it themselves.

How does this work for a business? The dynamics are identical, but the potential benefits are greater. Allow me to explain once more with a simple example. Joanne is a florist. She takes her delivery van to a local mechanic for a check-up. Whilst there she discovers Henry, the owner of the repair shop, is in the dog house for forgetting his anniversary. In this scenario Joanne gives Henry a nice floral bouquet in exchange for his fixing her van.

The obvious benefits are cash conservation, since a $50 bunch of flowers doesn't cost Joanne $50, and likewise the repairs don't cost Henry the amount he charges a client, otherwise niether company would make any profits. The less obvious benefits are the introduction of new customers (they are now aware of each others businesses and may potentially recommend their friends and famliy to each other), in addition they both became more efficient, moving a surplus (in Henry's case unused time, and in Joanne's case perishable inventory.)

The transaction is literally that simple. It's putting together the five criteria that causes the trouble, and what if you want to barter a larger transaction, say a $35,000 printing job, or a $20,000 roof, or a new car, a hot tub, or a vacation. How could Henry, Patricia, or any of our other characters in our examples pull that off? That's where a good quality barter exchange would come in, and that will be the topic of one of my next blogs.
 
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Anthony Donnelly is a majority licensee with Merchants Barter Exchange ( http://merchantsbarter.com ) an expert on bartering, and a sought-after smb-consultant and guest speaker. He is a regular contributor to publications and online blogs.