Trade exchanges can offer deals and help drive new customers to businesses. But buyers - and sellers - should beware of the fine print.
By BENITA D. NEWTON
Published June 30, 2003
When Peggy and Rick Wittlake go out to dinner, they don't need a credit card. They barter for their meals.
As owners of the Crafty Framer in Largo, they swap picture framing for dinners through the EXchange, an Orlando trading group.
"Sometimes, if it's not on barter, we don't eat there," Wittlake said.
Wittlake has bartered for everything from business card design and monthly Internet fees to regular massage therapy and vet visits. And her options are practically endless: Business owners can trade tai chi lessons for a tummy tuck. A child's private school tuition for a used Chevy. Pest control for a new spa.
Bartering has helped boost Wittlake's business by $14,000 in less than two years. "If you consider that our average sale is $100, you can see that's a pretty big increase," she said.
Bartering nationwide has seen double-digit gains since 1999 and has blossomed into a $4-billion industry in the Americas thanks to a tight economy and easier deals via the Internet, according to the International Reciprocal Trade Association in New York.
Scott Whitmer, president of the EXchange, said the 1,600-member organization has seen significant increases since Sept. 11 and expects business in 2003 to be up 10 percent over its $16-million in trade activity last year.
The EXchange has 350 members in the Tampa Bay area, who did about $3-million worth of barter sales and purchases last year. Among other Florida exchanges with a sizeable presence in the bay area are AAA Barter of Seminole, with 250 area members, and Consumer Barter of St. Petersburg, with 900 local members.
The concept is simple. When one member of a trade exchange buys something from another member, the money is debited from the buyer's trade account and transferred to the seller's account. The seller can then use the new credit to purchase goods or services from any other member. Sales are preauthorized, so payment is guaranteed.
"Clients will turn more to barter as their cash flow tightens up," said Whitmer, who started the EXchange in 1982 and is this year's president of the International Reciprocal Trade Association. "They still have valuable products and services available, and they're desperate to find new ways to reach new markets."
Wittlake had bartered with acquaintances in the past but found it frustrating to trade directly instead of from a pool of businesses.
"We were always top heavy," Wittlake said. "Either he owed us a lot of money or we owed him. I had to keep doing business with him just to collect my share of the money. With the EXchange, if someone comes in and frames, I don't have to have them mow my grass if I don't want to."
The exchanges make money by charging cash transaction fees, typically to the buyer, of 10 to 15 percent of the total purchase. In addition, there are monthly fees of $5 to $30 that are usually part cash and part trade dollars. A few exchanges also charge one-time startup fees that can range from $150 to $500.
Most trade exchanges offer weekly or daily faxes of new products and services available, as well as physical or online showrooms of member products. Members can contact a trade partner directly or purchase from the showroom There also are periodic newsletters and networking meetings, usually held at a member's business for maximum exposure.
Wittlake said these get-togethers are great for publicity and she always tries to reserve table space at the trade shows.
"There were so many people that had no idea at all that we were here that would come in and do custom framing on barter after the shows," Wittlake said. "It's a powerful way to network."
Opportunities abound for creative uses of bartering, especially during a sluggish economy. Small companies not able to fund employee health plans can reserve barter funds for employee health needs through gift certificates and accounts that employees can access.
Now that the days of large cash bonuses are nearly extinct, enterprising entrepreneurs even provide raises and employee incentives through trade dollars.
Chuck Nelms, president of Advantage Indoor Advertising in Clearwater, offers barter subaccounts to his seven employees as bonuses for the holidays, birthdays or other special occasions. The accounts are used for expenses such as medical bills and business trips.
"They love it," said Nelms, who is a member of AAA, Consumer, the National Commercial Exchange and the International Trade Exchange. "It's just a perk that comes along with the business."
Mark Clausen, vice president of Clausen Brothers Moving in St. Petersburg, agrees that barter can be a boon, especially when it means saving big bucks on big-ticket items. One recent barter paid for $4,000 worth of braces for one of his children.
"It's almost like an untapped second source of income," Clausen said.
But he doesn't love everything about it. A 12-year veteran of bartering, Clausen said his biggest problem is price inflation. While it's common practice to not honor discounts on barter purchases to help cover cash transaction fees, Clausen said some owners will charge higher prices for barter than they would for cash customers.
"I got a new transmission done a while back," Clausen said. "I paid $1,400 in barter for what should have only cost $750 in cash," Clausen said. "There's supposed to be action taken (by the trade exchanges). Sometimes there is, sometimes there's not."
Clausen suggests pricing services first without mentioning barter and noting if the price changes afterward.
"That way, you get a really good idea of who to deal with and who not to," he said. "Inflated prices in barter have left a bad taste in a few people's mouths."
As with any business venture, you should check out the exchange you're dealing with, state officials advise. Since no entity specifically oversees trade exchanges, there are opportunities for shady companies to set up shop. Businesses should look for longevity, verify membership and service claims, and carefully read trade agreements before joining any barter company.
Trade exchange officials say they safeguard against people getting ripped off. For instance, at the EXchange, trade dollars are held in escrow for long-term, more expensive projects until the work has been completed to the buyer's satisfaction.
Most of the exchanges call for some form of arbitration if there is a dispute. Unfair pricing is often grounds for membership termination, as is a failure to provide quality products and services as advertised. Alan R. Mink, president of AAA Barter, said his exchange gives a credit to the buyer's account in such cases.
"As part of our policies and procedures, all disputes between members are to be settled by themselves," said Mink, who declined to give sales figures for his 1,800-member organization. "But they can ask for the dispute to be settled by AAA Barter as the intermediary, and our decision is then binding for both parties. This has only needed to be done once in seven years."
International Barter Exchange president Ron Unger said IBE has terminated the memberships of 1,287 businesses over the past 13 years for infractions such as price inflation, failure to provide promised service, providing shoddy service and failure to return client phone calls.
"We take barter very seriously and do not tolerate inflation of any kind," Unger said.
Of course, wronging fellow barterers defeats one of the major bonuses of the system: its value as a marketing tool. Ron Unger has been running the International Barter Exchange for 14 years. Its 600 members generate between $6-million and $8-million in trades a year. Unger said bartering doesn't work well if you're only looking to sell products.
"Those who use it effectively see how it can be used to grow their businesses," Unger said. "Profiting through the power of exchange has become a way of life."
Businesses with higher profit margins and a lower cost of goods sold or those in service-related industries tend to barter well. Revenue not received on an empty hotel room or restaurant table, unused ad space at a media outlet or idle hours at a professional's office cannot be recovered. Bartering allows these types of businesses to collect on something that would otherwise go to waste.
In addition, businesses can use bartering to settle existing debts. If a company is willing to accept trade dollars for what they are owed, a delinquent customer can keep trading until he or she has worked off the debt.
Still, it doesn't always pan out for everyone. While plenty of people want to barter for his family and cosmetic dentistry, John A. Ferullo of St. Petersburg hasn't found much use for the money he has piled up in trade accounts. In fact, Ferullo has stopped taking business from Consumer Barter in St. Petersburg now that he's racked up $12,000 in barter money. He's got another $5,400 in IBE.
"My wife uses the money a lot more than I do, for camps and day school for our daughter," said Ferullo, who said barter accounts for less than 5 percent of his business. "I purchased some equipment that was fairly expensive, but that's about it. We expect to use more of the money now that we're getting ready to build a new house."
Nevertheless, Ferullo recommends barter as long as you do some research first.
"Make sure they have what you're looking for, and they're able to support what they say," said Ferullo, who's been bartering for 10 years. "If you do that, and you're happy with what they've got, it's a good thing."
