By Liese Hutchison
All civilizations used barter before the advent of money. Even after the coin was invented, exchanging goods and services was a fact of life in this nation just a few decades ago. Imagine the country doctor making a house call and the cash-poor family paying with a chicken or apple pie or loaf of homemade bread. Even with the onslaught of credit cards, debit cards, online payments (and don’t forget the good-old green stuff), bartering is making a resurgence.
What companies engage in bartering? Ones that want to conserve cash and market products, says Karen S. Hoffman, general manager of ITEX in St. Louis. ITEX is one of the nation’s largest bartering companies with 250 brokerage offices and exchanges around the world. It facilitates trades for a variety of companies, charges a one-time membership fee of $795 and receives a five percent brokerage fee when people buy or sell a good or service.
“In the ’80s, companies turned to bartering as another way to help them develop word-of-mouth advertising to help them grow,” she remembers. “Now successful companies are looking to increase their bottom lines, because a barter purchase means they’re not taking cash out of the company.”
Companies can barter computers, electronics, writing services, veterinarian visits, carpet cleaning, hotel nights, massages, car repairs and photography. The list is endless and here’s how it works. A business has excess inventory of widgets, it puts the widget on the barter exchange for a set price. Another business “purchases” the widget, putting trade dollars into the first business’ account. That first business then can use the trade dollars to “pay” for an accountant’s expertise or an air conditioning repair project. No money exchanges hands—only trade dollars are spent.
And while no actual money is being spent, the exchange is taxable. With the passage of the Tax Equity and Fiscal Responsibility Act of 1982, barter exchanges are required to report the barter income of their clients to the IRS on Form 1099-B. Hoffman says exchange and brokerage services such as hers have grown so rapidly because of the computer. Before it became standard issue on every office desk, these exchanges were harder to record. Now, anyone can barter without a great deal of extra record keeping. Bartered goods received, in the IRS’ eyes, are considered income. “The company doesn’t see a difference in income,” Hoffman says. “But it still will have to pay taxes.” ITEX boasts 400 members locally.
Bartering is also a marketing tool. By joining an exchange, a company’s goods or services are exposed to hundreds of members locally and thousands internationally. Bartering can also promote a business when exchanges are made with Premiere Services Group. Premiere Services Group started in 1997 as a way to “sell” unused air time in return for goods or services. It is a wholly owned division of Premiere Radio Networks, which is owned by Clear Channel Communications and produces radio shows such as Dr. Laura and Rush Limbaugh. Randy Stumpf, vice president with Premiere, says his division helps the revenue stream of the publicly traded company. “Bartering allows us to take our excess inventory and create revenue by bartering it for goods and services. We find goods and services that reduce our bottom line expenditures such as long distance, office goods and travel.” Premiere uses what it can internally and barters the rest, or with permission from the client, sells the goods and services for cash in another market.
The Facts:
- more than 300,000 firms now engage in barter
- a 15 percent annual growth rate is expected in the number of firms bartering over the next five years
- the average trade exchange is valued at $3,500
- $1 billion is bartered annually via exchange
- 600 barter companies serve the United States and overseas markets
Source: International Reciprocal Trade Association
Liese L. Hutchison is an assistant professor in the department of communication at Saint Louis University and a free-lance writer.
