It’s hard to imagine that 21st-century businesses would be taking a cue from primitive humans who lived in far less sophisticated societies several millennia ago. But they’re doing exactly that. They’re bartering goods and services, exchanging what they have for what they need- like our ancestors did in the era preceding the invention of money.
Business to Business (B2B) barter involves the trading of products and services between enterprises. For example, an advertising firm may offer to advertise a web design business in exchange for a facelift for its own website from that business. An accounting firm could provide bookkeeping services to an auto repair company in exchange for regular vehicle maintenance work and fixes for its fleet of staff buses.
The benefits
Businesses may turn to barter when they are unable to pay cash. It’s no surprise that B2B bartering takes place more widely and frequently during periods of general economic malaise (such as a recession). You’re more likely to find a barter partner when the going is tough for everyone.
Barter is also deployed by businesses to keep their inventories in manageable shape. This applies particularly to enterprises dealing in perishable goods. When there is an accumulation of stock that could go bad in a short while, sellers may be keen to give them to businesses that might have an urgent need for them; it’ll be a good bargain to get something in return, instead of letting all the perishable produce go to waste.
There’s a relationship-building element to bartering too. If your bartering partner discovers that there are benefits to using the products or services they got from you, they’ll likely come back for more- even if you’re offering them in exchange for cash next time. Perhaps, the most important part of this is the fact that relationships created through barter- especially those forged during the difficult periods, such as recessions –usually have a good chance of lasting beyond the first transaction, if both parties find that they are happy with what their bargains yielded for them.
The Downside to Barter
You’re likely to wind up with a bad deal if there’s no real way of weighing the value of what you’re offering against what you’ll be getting. For example, you might be trading IT support services for legal consultancy services from a law firm. You may find that while you carry out expensive repair work on the law firm’s systems on a monthly basis, you only have to consult with the firm on a single matter for the whole year. You discover that the monetary cost of the maintenance work you’ve been carrying out on the law firm’s IT systems amount to six times the cost of the legal advice you’ve gotten from them. Considering the fact that the time you spent on the firm’s equipment could have been deployed elsewhere, you would see yourself as having been hard done by.
Another problem with barter is the time that it takes to find a party that’s willing to engage in the process. This, of course, is an ancient problem (you may even remember learning about it in school; it’s one of the reasons why people eventually ditched bartering for coins and banknotes).
You might land great deals through the barter process, but barter doesn’t generate revenue (at least, not directly). You’re in business to make profits; unless you put restrictions on how much barter you engage in within a given period, it’s likely to cause your business more harm than good.
How you should approach bartering
Small businesses trying to find their feet could accomplish a lot with bartering, as they don’t have to pay cash for everything they need. However, you should be smart about bartering if you want it to work for you, and not against you. These three tips should help:
- Have a limit in place for bartering e.g. you will trade no more than ₦100,000 worth of goods and services via barter per month.
- Record barter deals, just like any other transaction, and be mindful of the effects they have on your business over time.
- It is preferable to barter with people and businesses you know, and have previously worked with. Trust is an important ingredient in the barter process; if it’s not in place, transactions might unravel or produce unpleasant results.
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This article was first published on 19th September 2017
ikenna-nwachukwu
Ikenna Nwachukwu holds a bachelor's degree in Economics from the University of Nigeria, Nsukka. He loves to look at the world through multiple lenses- economic, political, religious and philosophical- and to write about what he observes in a witty, yet reflective style.
Comments (1)
I like this Article and i would read again and again. However, I with a different barter company that owns one of the best barter software in the work. I am talking about OBMG Global Inc. FL, USA. I would like to get your contact so i can tell you what we do and how we can help each other. Once again, Thanks for this piece!