Barter System History: The Past and Present

If you've ever swapped one of your toys with a friend in return for one of their toys, you have
bartered. Bartering is trading services or goods with another person when there is no money
involved. This type of exchange was relied upon by early civilizations. There are even cultures
within modern society who still rely on this type of exchange. Bartering has been around for a
very long time, however, it's not necessarily something that an economy or society has relied
solely on.

What is a Barter System?

A barter system is an old method of exchange. Th is system has been used for centuries and
long before money was invented. People exchanged services and goods for other services and
goods in return. Today, bartering has made a comeback using techniques that are more
sophisticated to aid in trading; for instance, the Internet. In ancient times, this system involved
people in the same area, however today bartering is global. The value of bartering items can be
negotiated with the other party. Bartering doesn't involve money which is one of the advantages.
You can buy items by exchanging an item you have but no longer want or need. Generally,
trading in this manner is done through Online auctions and swap markets.

History of Bartering

The history of bartering dates all the way back to 6000 BC. Introduced by Mesopotamia tribes,
bartering was adopted by Phoenicians. Phoenicians bartered goods to those located in various
other cities across oceans. Babylonian's also developed an improved bartering system. Goods
were exchanged for food, tea, weapons, and spices. At times, human skulls were used as well.
Salt was another popular item exchanged. Salt was so valuable that Roman soldiers' salaries
were paid with it. In the Middle Ages, Europeans traveled around the globe to barter crafts and
furs in exchange for silks and perfumes. Colonial Americans exchanged musket balls, deer
skins, and wheat. When money was invented, bartering did not end, it become more organized.

Due to lack of money, bartering became popular in the 1930s during the Great Depression. It
was used to obtain food and various other services. It was done through groups or between
people who acted similar to banks. If any items were sold, the owner would receive credit and
the buyer's account would be debited.

Disadvantages and Advantages of Bartering

Just as with most things, there are disadvantages and advantages of bartering. A complication
of bartering is determining how trustworthy the person you are trading with is. The other person
does not have any proof or certification that they are legitimate, and there is no consumer
protection or warranties involved. This means that services and goods you are exchanging may
be exchanged for poor or defective items. You would not want to exchange a toy that is almost
brand new and in perfect working condition for a toy that is worn and does not work at all would
you? It may be a good idea to limit exchanges to family and friends in the beginning because
good bartering requires skill and experience. At times, it is easy to think the item you desire is
worth more than it actually is and underestimate the value of your own item.

On the positive side, there are great advantages to bartering. As mentioned earlier, you do not
need money to barter. Another advantage is that there is flexibility in bartering. For instance,
related products can be traded such as portable tablets in exchange for laptops. Or, items that
are completely different can be traded such as lawn mowers for televisions. Homes can now be
exchanged when people are traveling, which can save both parties money. For instance, if your
parents have friends in another state and they need somewhere to stay while on a family
vacation, their friends may trade their home for a week or so in exchange for your parents
allowing them to use your home.

Another advantage of bartering is that you do not have to part with material items. Instead, you
can offer a service in exchange for an item. For instance, if your friend has a skateboard that
you want and their bicycle needs work, if you are good at fixing things, you can offer to fix their
bike in exchange for the skateboard. With bartering two parties can get something they want or
need from each other without having to spend any money.

Fill Your Hotel Rooms With Barter

Owning a hotel can be quite stressful and it can seem as though new hotels are opening
everyday. It’s not enough to offer the best service and comfort anymore so it is becoming more
and more important to keep your hotel in the limelight. Advertising is one of those things that
can help, however, this can require a lot of investment with no guarantee of a return.

Hotels also have constant expenses which cannot be cut down on even during the low period of
tourism so it is very important to reduce costs and utilize the available resources to fullest.

Some strategies that you can adopt are:

• Trade unoccupied rooms for advertising: if you have rooms which are sometimes
unoccupied you may be able to trade them for advertising space in newspapers, billboards,
magazines, television and radio. By creating a marketing campaign centered around your
strengths, and doing so on barter, you are likely to attract more guests without putting cash at
risk. Like any other marketing initiative, however, a barter-funded program requires strategic
planning and precise implementation and monitoring.

• Use unused resources: Even if your hotel is always hundred percent occupied there are
lots of other resources which are often undervalued that could be sold on barter, for example:
conference rooms, gardens, ball rooms or restaurants. The conference halls can be rented for
conferences to different business in exchange for the materials or services that you need for the
smooth functioning of your hotels. The restaurants and gardens can be hired out for weddings
or parties or functions. Hence, you will be able to tap profits from what you already have with no
further investment.

• Rent out shops within the premises: Renting out retail space to businesses which are
compatible with the ambience of your hotel within your hotel can be a good way to attract
attention and provide a better “overall” feel to your facility. By creating innovative barter
arrangements with these tenants you could turn some under-utilised space into a new in-hotel
winery which, in turn, can pay you with wine for your own restaurant. You could also consider
renting out space to a tour-guide company who could offer a fixed amount of tour-packages to
you every month in payment. If neither of these options seems viable you could always consider
renting space via a barter exchange or Commerce Network who can structure a multi-way barter
deal whereby a third party pays you for the space in printing, laundry services or building
maintenance – things you need every day simply to open the doors of your hotel.

• Trading with travel agencies: Most people don’t have time to plan their own holidays so
they use travel agencies. By entering into strategic relationships with national and international
travel companies according to which they will promote your hotel to their clients in-turn you offer
their clients special discounts. This is profitable at both ends. As its helps you reach you to your
prospective customers and as for travel agencies, it helps them provide their customers better
packages at more competitive prices.

With effective planning you can barter your unused resources for goods and services as well as
advertising.

George Kneller said “Creativity, as has been said, consists largely of rearranging what we know
in order to find out what we do not know. Hence, to think creatively, we must be able to look
afresh at what we normally take for granted.” So use what you have in a creative way to get
what you want: Profit.

Restaurants That Barter are Better

Across the globe, more and more food and beverage establishments are turning to non-cash /
gift-voucher trade as a way to improve their bottom-line. By exchanging their certificates for
things that they need, entrepreneurial business owners have been able to pay for their existing
expenses with minimal cash outlay. After all, can there be anything better than paying for things
using new sales rather than digging into your wallet?

Such non-cash transactions also help restaurants, cafes, clubs, and bars fill empty seats, attract
customers away from the competition, develop their market, and help maintain that essential
“buzz”. A win-win all round.
Unfortunately, it’s not all plain sailing. Ideally, these types of businesses could trade directly with
existing suppliers for things they need but this is not always practical.

Issues such as timing, needs/wants matching, quantity and seasonal variations make direct
transactions of this type somewhat challenging, although those who have entered into them see
the obvious benefits.

As an alternative to these one-to-one deals, large well-established centralised marketplaces,

designed to broker multi-way cashless transactions, operate across the globe. These commerce
networks allow participating businesses to engage in virtually any type of trade while eliminating
the complication of direct transactions.

• Have unsold venue tickets on one hand, and ongoing sound and lighting expenses on
the other?
• Are you buying imported, or local, wines for cash now but still have empty seats some
nights of the week?
• Looking for more corporate customers to fill up your empty afternoons or to help you
expand into the lucrative catering or venue-hire markets?

The Ormita Commerce Network has recently entered the Indian marketplace to answer these
problems, and more. The companies cashless trade network currently spans 46 countries and
performs more than $100 million US Dollars of similar transactions every month. Everything
from electronics, machinery, produce and minerals are available to members of the system.

An Example Transaction

1. Let’s say that your restaurant has an ongoing budget of 1 Lakh per month for
advertising, spread across billboards, newspapers, magazines, and radio.

2. Instead of paying cash for this advertising, Ormita will take 1 Lakh worth of gift
certificates from you and give you the same value of advertising in return.

3. You now have 1 Lakh worth of advertising at a cost of between 15% – 30% (the raw
material cost to make the meals) and you are paying for your advertising with new sales, not
existing income.

Effectively Ormita has:

• Reduced your cash outlay by up to 85%;
• Introduced new customers to your establishment;
• Improved your profitability; and
• Expanded your market share.
Additional benefits

Research shows that, in general, less than 75% of all vouchers ever get redeemed and that a
guest with a certificate tends to purchase more than the certificate itself.

You may also get the “breakage” on the certificates you produce – if a customer does not spend
the full value of certificate as you do not have to refund the remaining balance.

Bartering with Billboard Companies

The cost of maintaining a billboard advertising company is huge. Costs include machinery,
maintenance, sign-writing, equipment, advertising and administrative costs plus the costs of
wages for employees and casual labor alike. It requires entrepreneurs to have a creative team
to design the ads, a disciplined staff to keep the budgets and the hardworking labor to do the
final job of erecting the billboards. All these are essentials and cannot be parted with. On the
plus side: using a billboards unsold space to pay for these ongoing costs can provide a way for
the business to meet its needs while capitalizing on its existing resources.

Every business needs advertising. This includes the businesses who you buy the tools and
machinery for your business from.

Reaching an agreement where you erect billboards for them in trade for the equipments and
machinery you need will save you the cash that you can then spend on other areas.

Even billboard advertising companies need advertising. Barter can be especially helpful
offsetting the cost of advertising. TV and radio stations use a lot of billboard advertising. If you
can cut a deal with them wherein you give them some percentage discount on the work you do
for them, along with the most creative billboards especially rotating digital ones in turn for free
advertising on their airtime, you can save yourself a lot of cash investment.

Barter can also be used to get other assets for your business. Have you ever considered direct
or indirect barter for real-estate upon which to erect your billboards? High rise buildings are
generally considered good locations for erecting billboards. Hence, you can rent this space for
free by trading, or discounting, services with building owners.

Being creative and innovative is necessary in the advertising industry. However, using the same
innovative approach to plan the financial end of your enterprise can help you get an edge over
others in the same line of business.

Small business generally can’t afford huge billboards but if you plan carefully and arrange deals
between two or four such businesses which compliment each other you can make even better
use of existing space and achieve greater returns. You will be able to get customers who would
otherwise not be able to afford a full advertising campaign and, in turn, receive smaller
quantities of those “still essential” items that you would normally pay cash for.

When you use barter you get customers guaranteed. When you spend cash with a business
today there is no surety that they, in turn, will make a purchase from you. When you barter with
someone both parties win [provided they need one anothers product or service]. If you can
structure direct deals with suppliers you have a great way to save cash. Even when this is not
possible you can employ a Commerce Network to develop a three, four or multi-way transaction
which will let all parties involved acquire the product or service that they require out of the deal,
thereby making everyone happy – and saving everyone cash.

Looking for Startup Capital? Think Barter!

Starting a new business requires investment of money, time and expertise. During the initial
setup a lot of capital is required. In some cases, entrepreneurs may seek outside investment to
get the necessary capital to get there business off ground. Attaining cash investors is not an
easy task. It is a risky proposition to invest in a new business and hence it’s difficult to convince
people that your business is worth the risk. So, why not barter shares of your business for the
goods and services that you require in place of cash investment? People who are skeptical in
investing cash in your business might not be so while investing in kind. A few reasons for that
are illustrated below:

• They gain a customer: when someone trades their products and services for equity in your
business, they gain you as a customer. You might not be a cash paying customer right now but
you are helping them build their asset base and sell their inventory. Also, as your business
becomes profitable they will be able to gain profit in terms of cash too. There is also the
possibility that in future you might become a cash paying customer.

• They gain an asset: When these businesses invest in kind in your business, they use their
products and services to increase their asset base. If they would have sold their products in the
market to a cash paying customer and then would have invested in a business it would have
meant the same. However, now they are investing in a business whose growth will directly effect
their business growth as you use their products in your business.

• Mutual benefits: There are other benefits too. Like they can use your business for advertising
their enterprise and they can advertise you in turn. They can use your services or products and
you give them a better deal than available in market as they are your benefactor. For example,
you own a beauty salon and enter a barter trade with a cosmetic company. They supplied your
business with necessary products in exchange for an equity share in it. Now, you are
advertising their products to your customers. You also sell their products in your location and if
their clients or associates use your salon you give them an additional discount. Hence, it is a
good investment for them.
One might think that this might be a good proposition for the investor but why should a new
business accept products and services instead of cash. The answer is simple it’s easier.

1. First and foremost it’s easier to gain investment in terms of products and services than in
terms of cash. As mentioned earlier investing in a business involves risk and risking hard cash is
more difficult than risking products and services. This has as much to do with human
psychology as economics.

2. The Times of India provides advertising to up and coming businesses in return for equity
shares in these businesses. The Bennett and Coleman group that owns this paper is one of the
biggest media giants. They have experience in business they can share with others if they are a
part of their network. Similarly, when you seek outside investment you gain not just from the
investors’ products and services but also from their experience and their market standing.

3. Being an investment to an established business helps you increase your customer base. This
is because these businesses have interest in your growth. They will refer their customers to you.
They will help you establish market value and you can use their contacts for improving your
business.

4. Also, some businesses want to invest in other businesses but for them cash investment is
difficult as they do not have the necessary cash accumulated for major investment. Hence, you
give such businesses a chance by taking investment in terms of products. As products are more
readily available than cash.

When seeking finance you should remember that barter is the most effective way of equity
financing.

Barter and the Food Service Industry

Restaurants can effectively use barter to convert empty tables into new revenue which they can
put towards paying for existing, ongoing, cash expenses such as food and wine supplies,
equipment maintenance, carpet cleaning, electrical work, exhaust hood cleaning, landscaping,
staff incentives, building upkeep, printing and marketing services. They can also barter to get
newspaper and radio advertising which, in turn, should generate more cash sales.

Bartering for food and wine

A restaurant owner could enter into a barter relationship whereby they give gift certificates to a
winery in exchange for a certain amount of wine per month. The winery, in turn, can use these
for customer promotions, giveaways and incentives – or simply as a way to reward owners,
employees and staff. This represents a good way for the winery to increase their customer-base
and allows them to introduce their wine to more restaurants as they will now have more
reference sites.

Restaurants can also partner with wineries for wine-tasting evenings where the restaurant
provides the food and the winery provides the beverages. Both parties win through
cross-promotion to each-others existing customer base and can receive excellent publicity.

If indirect barter is needed the restaurant could consider joining a Commerce Network who will,
in turn, enable them to trade out a set amount of meals for food and wine on an ongoing basis.
The restaurant will then be covering their ongoing cash expenses with new sales instead of
existing income. This is a great solution for those looking for creative ways to meet new growth
targets and/or save money.

Other suggestions for barter

Barter meals on slow nights: Restaurant may barter meals on specified days only e.g. Monday
to Thursday when the business is slow or during lunch hours rather than dinner hour.
Understanding your options when entering into a barter arrangement, and being selective about
when you barter, will help to ensure that you have clientele to fill the unoccupied tables of your
restaurants even during the slow nights. This gives your restaurant a busy look and keeps your
resources fully utilized.

Rent out: You may also barter deals wherein you rent out your restaurant for parties,
conferences, weddings etc. This can be utilized as a good way to diversify your customer base
as you will be able to reach out a larger group. Also the guests at such occasions will come
back to your restaurant if you give impeccable service and food.

Sell gift certificates: Don’t be shy in selling your meal gift certificates to your customers. Promote
them so that the customers feel they are the best deal they could get and that you are doing
them a service by giving them an opportunity to buy these gift certificates. Offer them to loyal
clients who patronize your restaurants regularly or to completely new customers to ensure they
comeback.

Host events: To attract more barter business at times favorable to the restaurant, owners can
host special daytime cooking classes or luncheons on weekday evenings. By using downtime,
the restaurant remains full and income is being generated.

Restaurateurs have can not only supply and service their existing locations with trade money,
but they can also use trade to expand, and even to build, new restaurants.

Pay in Gift Certificates: For those businesses looking to renovate or grow you could consider
paying for contract labour, equipment and materials in gift certificates which can be redeemed
over a period of time. This is a great way for you to fund your current developments out of
guaranteed future sales!

Why Barter at All?

Bartering is a medium in which goods or services are exchanged for other goods and/or
services without use of money. Bartering has grown in popularity today with consumers and
businesses realizing that it’s a very creative way to lower expenses. It certainly isn’t something
new; bartering has been around for a very long time. It’s the way our ancestors conducted their
daily business and how they survived.

Today the barter system can be used in a much more sophisticated way than ever before yet it
carries with it the same basic motivation – the need for something that you don’t have and the
excess of something that someone else wants. Using barter exchange business or a commerce
network to negotiate for what you are looking for with what you can provide can help in many
ways.

• Conserves cash: Liquidity or cash is very important in a monetary economy. When you
use barter your goods or services replace cash and become your biggest asset. Suddenly your
purchasing power is no longer limited to how much cash you have in the bank. Instead you are
buying based on your potential to make new income – not your historic sales. You can barter to
get advertising, supplies, or even to pay for services like accounting or taxation. Remember: a
shortage of cash is not an unusual situation and is never anything to be ashamed of. Bartering
provides a way for you to continue to exchange something of value (a service or product) for
what you need.

• Helps create new customers: Not only does bartering conserve cash, but it can actually
generate sales and profits as it helps you get new customers. In a barter exchange both parties
make a sale to someone they wouldn’t normally have considered a customer. So, barter helps
you reach to a larger customer base, create word-of mouth referrals from your newly satisfied
customers and to provide you with a greater market penetration for your product or service.

• Bartering can help you get equity stakes: bartering for equity stakes in other businesses
can be done by small and large businesses alike. If you are a start-up then you can offer shares
in return for advertising, accounting services, office space, equipment or professional services.
If you are a business with excess capacity you may like to invest this into a new enterprise and
retrieve a return on your investment in the forms of cash dividends or eventual sale of your
shares.

• Helps use unused resources: bartering helps you ensure that all your resources and
services are being utilized to their full potential. Many times you may not realize it but there is
potential in your business to grow.
• Mutual benefit: barter deals are mutually advantageous. Neither party has to part with
much of their hard-earned cash to obtain the desired goods or services. Not only does bartering
conserve cash, but it can actually generate sales and profits for both businesses involved. The
barter model of business is based on cooperation rather than competition.

• No effect of recession: Barter remains unaffected during inflation. In many economies of

the world during economic crisis barter replaces money as the method of exchange, when the
currency is unstable and devalued by hyperinflation.

Direct Trade vs Multiple Way Barter

Barter is the method of trade in which goods or services are directly exchanged for other goods
and/or services, without or with minimum use of money. Historically barter operated instead of
money as the primary method of exchange. This also occurred throughout history in times of
monetary crisis, when a currency was unstable, or devalued by hyperinflation or recession.
Nowadays, however, barter is a major force in the economic world. According to a recent article
in the Wall Street Journal about 250,000 North American companies conducted barter
transactions worth more than $16 billion in 2008. These numbers speak for the importance of
barter today.

Barter can be bilateral or multilateral, and usually exists parallel to monetary systems in most
developed countries. Although companies do bartering one on one, many deals are conducted
via membership networks in barter companies, trade associations or commerce networks;
where technology and tracking software have modernized the centuries-old system.

Advantages of using multilateral barter or barter exchange commerce over a direct or bilateral
barter are many.

Multilateral barter is more complex to settle but allows trades that would not be possible with
bilateral barter.

Bilateral barter is only possible when there is a coincidence of wants between two businesses.
For a bilateral barter to take place it’s necessary that each party must be able to supply
something the other party demands. This is not always likely to happen. Imagine you are a
bookstore and need wooden shelves for displays and want to barter books for the same. But it
will be quite unlikely for you to find a carpenter or a wooden furniture distributor who will like to
trade for your books.

In multilateral barter, exchanges do not need to be direct. Instead three, four, five and six-way
transactions are possible. Transactions can also take place at different times so no single
supplier needs to “swap” their product or service immediately but can do so over a period of
time. In these instances the value of the deal is recorded centrally and the process managed by
a commerce network or barter exchange organisation.

Nearly every business faces the problem of cash flow management. Issues that contribute to
the need for cash flow management include highly competitive markets where constant
advertising is a mandate, increasing business expenditures to attract consumer attention,
planned or unplanned downtime, perishable inventory and the necessity of discounting
inventory. Modern, multilateral barter helps businesses alleviate the affect of these problems.

Commerce networks develop a system with a virtual value unit (“barter dollars,” for example) to
measure and balance exchanges, very similar to a monetary system. These commerce
networks exercise controls that prevent exploitation by any participants involved or of any
participants involved.

A commerce network system helps remove the limitations that traditionally were a part of any
barter transaction, such as the need for an equal dollar value, the mutual need between any two
companies for each other’s product or service, and the time it can take to coordinate the
transaction.

With advancements in computer technology, the concept of a bartering system emerged as a

means by which business-to-business barter could take place between many businesses
simultaneously, greatly increasing the benefits of trading without cash.

Hence, a commerce network helps provide strategic planning, precise implementation and
monitoring to the centuries old concept of bartering.

Barter as a Means to Collect Bad Debt

Most businesses suffer from the issue of bad debts (accounts receivable that will most likely
remain uncollectible and will be written off). These debts appear as an expense on the
company’s income statement, thus reducing net income and most companies make a bad debt
allowance since it is unlikely that all of their debtors will pay them in full.

What if you came up with a way to ensure that all your debtors do pay their debts?

What if there were some creative ways in which you can ensure that you collect bad debts and
save your money as well as the debtor?

More often than not a debtors does wish to pay back their debt but may lack the funds to do so.
Chasing anyone through the legal system is both time-consuming and costly and there are no
guarantees that you will get paid, especially if you are not the preferential creditor.
If the a creditor can come up with some alternate way to collect a debt then they will not just
save themselves time and money but it will also help maintain the relationship between
businesses. Some creative and new ways to collect bad debt are listed below:

Encourage them to work on a payment plan: If the business that owes you a debt cannot pay all
at a time, work out a payment plan with them. Formulate an easy plan that depends on their
ability to pay. Getting payment in small amounts eventually is better then waiting forever for a
large sum to be paid back that might never be paid.

Help sell their products for them and take a portion of the sale price: As you already have an
established business and reputation you can help your debtor to improve their business.
Consider advertising their product or service to your customers. This way their sales will
increase and you can fix a part of sales as a payment on the debt.

Take their products directly off them: You can also consider taking their products directly from
them. For example, if your debtor is a furniture seller, collect their furniture in amount for your
debt and sell, or barter, it to get what you need.

Get them to join a barter exchange: Encourage your debtor to join a barter or commerce
network that will sell their product or service for them and give you barter credits. You can then
use these barter credits to buy things YOU need – just like cash.

These methods can save you money and save the debtor. It saves you collection fees and time
and saves the person who owes you money because it brings them new customers and helps
support their business. Rather than try and “kill them” and maybe get nothing [because there
may be other creditors] you can work with them to grow their business by encouraging new
customers to go there. Always remember what the Roman playwright and philosopher said ‘He
that does good to another does good also to himself.’

Risks Involved in Direct Bartering

Like every business transaction barter exchange too has some risks involved with it. Before
entering barter deals it’s important to analyze the risks involved along with the benefits for both
parties.

Imbalance in trade: there is a possibility of imbalance between what you trade and what you get
in exchange. As different products and services have different value units. Also, it is very difficult
to measure value of services rendered. For example, one hour of plumbing work is not equal in
value to one hour of secretarial or accounting work. Hence, absence of common measure of
value or a medium of exchange can lead to imbalances in barter. Therefore, using a well
established bartering system or network helps you minimize this risk. The values of the goods
and services being bartered are determined by these organizations.

Problem of fraud: imagine you trade with a man to handle his tax books for a financial year and
at the end of the year he will give your home a maker over in interiors. You did the work for him
throughout the year but when the time came for him to fulfill his end of the trade he backed
away. What will you do? Hence, to avoid such risks it becomes necessary to check the
credentials of your barter partner. Also, always consider the need for a written contract
underlining the terms of the barter contract.

Force majeure: these are referred to those major events which are always recognized as events
of force and can arise from several causes, the two most common being either “acts of God or
nature” like floods, earthquakes, hurricanes, snowstorms, severe winds, etc. or acts of
government” like war, emergency, riots etc. In these situations, you might not be able to
complete a barter contract and this in turn might lead to breech of contract. So for managing
these risks insurance is important.

Terms and conditions: before entering a barter network go through its policies and procedures.
Ensure that you are aware of its working. Before joining the club, ask about the policy regarding
members who quit when they have a surplus of units. At one club, the management would give
us one year in which to spend them.

Prepare for taxes, barter is not tax exempt: Many times people think that as they are bartering
they are not liable to taxation. That is not the case. Bartering dollars are exactly the same as
real dollars. Earn a dollar in a bartering system, and you’ll still have to pay taxes on that money
in real dollars later. Plan accordingly! Otherwise you might become a tax defaulter.

Bartering can be a great way to market your business and gain new clients and trade for
services you need for your business. However, there are pitfalls. Plan ahead, avoid the risks.