Barter - How Does Barter Work?

Barter, it's a hot-topic these days and all over thePatricia is a stay-at-home mom that has a strong
news because of the uncertain economy andtalent for making very nice cakes. She needs
rising unemployment. This post accompanies asome curtains for her windows. On chatting to a
sister article I wrote earlier: Barter: What is Barterneighbor - who just so happens to be a very
Exactly? and will hopefully fill in some extra blankscompetent seamstress - she discovers her
in your knowledge-gap. To avoid repetition, if youdaughter is getting married and needs a wedding
don't know what barter is, I suggest you readcake made. In this barter situation, Patricia offers
that article first, then read this one.to make the wedding cake in exchange for her
Barter is not only the oldest and most provenneighbor making the curtains. It's a win-win, both
form of commerce, it is most likely the simplest.save the cash expense involved, or the hassle of
Prior to highly-organized national barter companies,trying to do it themselves.
that make bartering extremely easy andHow does this work for a business? The
effective for their members, barter (or trading,dynamics are identical, but the potential benefits
as it is otherwise known) dealt predominantly withare greater. Allow me to explain once more with
small amounts/ transactions (usually well belowa simple example. Joanne is a florist. She takes
$400.) For simplicity's sake, I shall stick toher delivery van to a local mechanic for a
individual, or one-to-one barter in this post, andcheck-up. Whilst there she discovers Henry, the
save a discussion about barter exchanges forowner of the repair shop, is in the dog house for
another.forgetting his anniversary. In this scenario Joanne
"A dollar saved is a dollar earned," as the sayinggives Henry a nice floral bouquet in exchange for
goes. This is something barter is exceptionallyhis fixing her van.
good at helping you do, and because it doesn'tThe obvious benefits are cash conservation, since
involve money, it is a great method to eithera $50 bunch of flowers doesn't cost Joanne $50,
improve cash flow, or to conserve your cash.and likewise the repairs don't cost Henry the
A number of factors have to be present in orderamount he charges a client, otherwise niether
for a 'trade' to work:company would make any profits. The less
1. You have to have a need (for a good orobvious benefits are the introduction of new
service)customers (they are now aware of each others
2. You must be able to offer something else ofbusinesses and may potentially recommend their
value in exchangefriends and famliy to each other), in addition they
3. There needs to be another party offering whatboth became more efficient, moving a surplus (in
you needHenry's case unused time, and in Joanne's case
4. The other party must want what you areperishable inventory.)
offering, andThe transaction is literally that simple. It's putting
5. The timing and quantity must matchtogether the five criteria that causes the trouble,
Because of this seemingly insurmountable list ofand what if you want to barter a larger
requirements, very often it is just easier to spendtransaction, say a $35,000 printing job, or a
cash, and is the reason for monetary systems'$20,000 roof, or a new car, a hot tub, or a
popularity (and the need for barter companies.)vacation. How could Henry, Patricia, or any of our
For this reason, the vast majority of independentother characters in our examples pull that off?
trades happen by accident - or increasingly via theThat's where a good quality barter exchange
likes of Craigslist in their "barter" section.would come in, and that will be the topic of one
Let us use an example to demonstrate howof my next blogs.
barter works, if the five criteria above are fulfilled.