Using Barter Can Boost Your Profits & Cut Costs

Companies of every size and description, from the entrepreneurial startups to multi-national giants, are now acquiring needed goods and services through barter, corporate barter and countertrade. Here’s how companies of any size can start to save money by looking for bartering opportunities with their suppliers…

Barter Rule #1:

Virtually anything your company pays cash for is a prime candidate for utilizing barter. Start by evaluating every product or service your company buys from the point of view of a barter opportunity.

Could you consider exchanging your company’s product or service as payment, or partial payment, to a supplier/vendor? This is direct barter, and involves an agreement between a buyer and seller that all or part of a bill will be paid through trade-in-kind rather than cash.

If you cannot come up with a good fit for direct barter, then explore indirect barter. It’s done through an entity called a trade exchange or barter company, where different businesses (usually locally) who are members of the barter company, will buy and sell to one another using a trade dollar. One way to determine what goods and services are available is to look a trade exchange’s directory.

Barter Rule #2:

Be sure you fully understand the economics of your own business, and that of suppliers who are potential barter candidates. Unless you do, you could wind up negotiating barter deals that waste company assets. Or, you might turn down a barter endeavor that could be valuable in the mistaken belief that the terms are unfair.

Understanding a supplier’s cost breakdown can also help in negotiating a direct partial barter deal. For example, a print shop buys paper and ink for cash, but rarely operates at 100% capacity. This down-time makes no contribution to the printer’s fixed costs. Therefore, a new customer could negotiate to cover the fixed cost of paper and ink with a cash payment, while the rest of the job would be payable in barter.

Barter Rule #3:

Negotiate only with the company owner or sales manager. A supplier’s salesperson is not the person to talk to when desiring a barter arrangement, for two reasons. First, they are not able to make the decision, and second, it would be counterproductive cutting into his/her commission. However, the firm’s owner or sales manager can understand the value of conserving cash and establishing a long-term relationship based on using barter in the mix.

Then if it makes economic sense, offer a supplier preferred status for agreeing to take partial payment in trade. The strategy for success is to undertake a small transaction first, thus allowing participants to become familiar with how barter can work for them. And then build on that success.

Barter Rule #4:

Keep exact records of barter arrangements on your company books. Make sure at least one person in the accounting department understands exactly how these agreements are to be accounted for, and give that person responsibility—and the necessary tool—for booking them properly.

When you follow these 4 rules you will find that barter can boost your profits and cut costs.