Barter refers to the practice of trading goods and services in exchange for other products and services, minus the involvement of money. Bartering benefits all because an individual or a business get the items or services they require. Businesses with limited cash flow can make use of the barter system to get whatever they need. Companies can also barter a service in exchange for a product.
History of Barter
Bartering is an ancient trade strategy that dates back to 6000 B.C. The tribes of Mesopotamia are believed to introduce this practice to the world. Gradually it was adopted by the Phoenicians who used to trade their goods to people in other cities. And later people of Babylonia also implemented it with some improvements. People used to exchange their goods for food items, spices, salt, tea, cattle, sheep, and even weapons. It would be interesting to mention that salt was considered very valuable in ancient times. Its importance could be understood from the fact that the salaries of Roman soldiers were paid in salt.
Why Barter Lost Its Sheen?
There were many reasons that contributed to the decline of the ancient barter system. The biggest drawback was the rising disputes and clashes among barterers as there were no specific criteria to define the value of goods and services. Another issue was the growing mismatch between the demands of the parties involved – what one wanted was not necessarily available with the other. The traders also started facing difficulties in storing goods for a longer period as the majority of these goods were perishable in nature.
These problems were tackled with the introduction of money. However, bartering has remained in existence in some ways or the other.
Modern Barter System
The concept of barter system remains the same in the modern economic scenario. That is, products and services are still being exchanged for other products and services. The exchange of money is happening in the form of ‘trade credits’ instead of settlements in the form of physical currency.
The need to re-introduce bartering was felt because companies very often found themselves in a situation where they were left with excess inventory. They also started realizing the power of diversifying the business, establishing and maintaining a strong customer base, and at the same time conserving cash.
According to industry experts, globalization of barter is expected in the next decade with some also predicting a universal barter currency. The World Trade Organization has reported that 15% of the international trade worth $5.62 trillion was in the form of barter last year. Asia, Australia and Europe are growing markets for Bartering.
Role of Modern Barter Exchange
A barter trade exchange is a third party entity that helps in coordinating barter transactions between its members. It acts as a bank that keeps track of the value of barter transactions, and the value of each member's account. Monthly accounting of each member is maintained by a barter trade exchange and also reports year-end taxes applicable on the barter transactions.
Barter exchanges help its members to trade locally or regionally. They have their websites showing all products and services that are available for sale. A member’s trade account is debited if it buys products or services from exchange members. If a member sells products or services to other members, its account is credited.
Partnering with a Barter Exchange allows trading among more businesses. The members can get into a bi-lateral or multi-lateral trade agreement.
Barter exchanges charge a certain percentage of commission on every successful transaction.
One of the most significant advantages of partnering with a barter exchange is that members can strike a business deal with several other businesses or individuals without worrying about keeping track of who owes what to whom.
Why Businesses Today Should Consider Barter?
There are numerous benefits of adopting a Barter Trade Strategy. Let us look at certain factors - relevant to the modern economy - that makes bartering a viable option for any business.
1.Increased Profitability – Bartering allows acquiring the required products and services at a very low marginal cost. This improves the overall profitability of a business.
2.Bartering through a trade exchange is helping in diversifying the customer base.
3.Bartering helps businesses to overcome challenges of an economic slowdown. This is because a Barter Exchange continuously helps you to expand the customer base.
4.Trading for services and equipment that are needed to increase a company’s efficiency is improving the overall operating efficiency of a business.
5.Barter trade allows companies to promote motivation among their workforce through the use of perks, bonuses, and rewards for employees.
6.Replacing cash purchases with trade credits is helping Barter members to use their working capital more productively.
7.Adopting a barter trade strategy allows businesses an opportunity to develop new products and services as barter sales mean more cash-flow.
8.Barter sales improve a business’s market share.
To Summarize
Barter Trade is as relevant today as it was in the early age. Barter trade was a compulsion earlier because of the absence of money. But in the present age, businesses have realized the importance of preserving money. There is no better way of doing this than adopting a Barter Trade business strategy. Choose a Barter Exchange that has partnered with members according to your business line.
If you would like to discuss more on how barter trade can facilitate your business, you can reach out to us atkb@interactivetrade.in/ +91 9999984234.
