- Are you looking to generate more sales?
- Do you have excess Inventory or service capacity?
- Are you interested in bartering your Goods & Services for other Goods & Services without spending cash?
Business people barter because they are able to finance the purchases of things they need out of the additional sales of their own product. When a merchant buys something on barter, he knows that purchase will be offset (i.e. paid for) by additional sales to other members of the barter exchange.
In a cash situation, the cash spent by the merchant for the same purchase would have to come out of existing sales, not new sales. He has no assurance, when he makes a cash purchase, that this results in additional sales of his own product. The economic advantages of barter hinge on the fact that barter brings in new business. Barter sales are an increment over and above cash sales. They are a supplement to a firm's cash business, usually not amounting to more than 2-5 percent of total business. To take advantage of barter, a firm has to have the extra capacity to take on additional sales, over and above cash sales.
As an example, take a business owner who does a good deal of business related entertaining. He joins a barter exchange and notes that several restaurants are members. Other things being equal, he has an incentive to switch his business to the barter restaurants because:
- He won't have to reduce his cash flow (out of his cash sales) for this business expense, but instead
- He can finance this expense out of his additional barter sales.
Members of a barter exchange, in other words, go out of their way to deal with other members, because they are able to pay for the things they buy out of extra sales and not out of their cash, which stays in the till. Barter aids the businessman who has reached a certain level of cash sales and still has the capacity to expand his output. Few and fortunate, indeed, are the business people who, having made an investment in parts and equipment, find themselves operating at full or over-full capacity. For most firms, spare capacity and unwanted inventory are a normal occurrence, with a powerful economic plus: they permit increased sales at low incremental cost.
The economic advantages of barter can be seen by comparing a firm's position before and after barter. We see the following:
- Barter results in additional sales, hence added profit.
- Barter enables a firm to conserve its cash, resulting in better liquidity and a saving equal to the going cost of money.
Business people also establish new business relations through barter. They gain from an intangible web of referrals, advertising, and associations that generate both additional cash and barter business.
In the final analysis, the most advantageous way for business people to finance their purchases is through increased sales. The success of commercial barter lies in stimulating these additional sales while conserving cash.
