Barter Exchanges Helping Boost Members’ Purchasing Power
Greenbacks, frogskins, smackaroos and scratch: Americans have about as many words for money as Eskimos do for snow.
And why not? Money--making it, spending it and obtaining more of it--is the national occupation, bestowing power to those who have the most and making paupers of those with the least.
However, in an increasingly cold economy dominated by corporations, cooperatives and conglomerates, many businesses are turning their backs on the dollar bill and rediscovering the most ancient form of trade--bartering.
“People who get into this say it’s like a fever,” said Royce Newcomb, president and chief executive of the United Trade Bureau, a barter exchange broker that recently opened a branch in Ventura. “It provides them with opportunities they wouldn’t otherwise have. . . . It gives them buying power without having to be liquid, and equity without having to go into debt.”
For Ventura public relations executive Deborah Torbert, her opportunity came in the form of three desks, two shelving units, a work table and chairs.
“It was a little funny buying things without any money,” said Torbert, a partner at Delonoy, Warren, Torbert and Associates, who spent $1,500 in United Trade Bureau barter credit for the furniture. “We found exactly what we wanted.”
She said she has already started paying back the purchase by heading up the exchange’s public relations campaign in Ventura County.
Although it’s a concept probably as old as the Neanderthal, bartering and exchanges such as Newcomb’s are gaining legitimacy among business owners as an attractive alternative to the dollar-driven market.
According to the Chicago-based International Reciprocal Trade Assn., more than 400,000 U.S. businesses use bartering as part of their daily operations, accounting for about $7.5 billion in trades during 1995.
In Southern California, a national mecca of barter trading, more than 7,000 businesses are enrolled in one or more of the region’s 71 exchanges.
Established three years ago, the United Trade Bureau in Modesto has grown to include 16 offices throughout the West with more than 3,000 members.
The exchange’s newest office in Ventura, which opened a few weeks ago and has already signed several new members, is the company’s first foray into the Southern California market. Company officials said they plan to open another branch in San Diego.
As Newcomb and other adherents say, because barter exchanges are completely separate economies, they often liberate businesses from the kinds of cash constraints that would ordinarily keep them from making purchases.
Because their buying power is based solely on production capacity and willingness to participate, businesses can obtain pricey items such as air conditioning and skilled services such as plumbing by simply anteing up their product or service.
“It just gets rid of the money problem,” said Newcomb, a former contractor. “If you’re a company and you can deliver something, then you’ve got business and buying power at UTB. . . . You don’t have to worry about loans or debt or not having enough to buy something your business needs.”
Newcomb’s exchange works like this: Members accumulate account credits by offering other members free goods and services. They can then spend those credits with any other member they choose.
For businesses that are cash-poor, a barter exchange can help them cut costs and also gives them a captive audience to which to market their wares.
“That’s something else, businesses have to spend so much on advertising, but on the exchange, we do it for them, which is really money earned,” Newcomb said.
The United Trade Bureau and other exchanges earn their money through a $295 initial enrollment fee, $148 annual membership dues and a 10% commission levied for every transaction.
And if businesses are looking for a loophole to escape sales-tax obligations, the Internal Revenue Service long ago reined in exchanges. In 1982, a special tax law was adopted by Congress that required businesses to pay sales taxes on bartered goods as they would with any traditional sale.
Barter exchanges have been around for decades, but were limited because most were unsophisticated operations that offered only services and not products to members.
However, in recent years, exchanges have begun listing a gamut of goods available to members, a practice that Newcomb and industry analysts credit with increasing their popularity.
The United Trade Bureau, for instance, lists everything from accounting services to automotive transmissions to island properties in the Caribbean.
“I’d have to say that’s what has given us the ability to grow so fast,” Newcomb said. “People want hard goods, things they can see, things they can use.”
However, as some business owners have said, there are downsides to bartering, but no more so than there are with paying by cash.
For instance, it can take years for businesses whose products are less in demand to work off credits for things they have acquired. There are also some unscrupulous exchange members who deliberately overestimate the value of their goods.
“It’s the same situation you find when you go out to buy anything else,” said Jeff Morrie, a Modesto restaurateur who used about $175,000 in barter credits to expand and outfit his business. “You’ve got to shop around and make sure you’re getting the best deal. . . . Even with these exchanges, it’s still buyer beware.”
Morrie said the current customer demand for his upscale restaurant, Hazel’s Elegant Dining, is rather slack, so it’s going to take time to work off his credit. However, unlike banks and other lending institutions that could have aided his business’ development, exchanges such as the United Trade Bureau don’t have repayment deadlines.
“It’s not something I’m worried about,” he said. “Eventually, it’ll all be paid off.”
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