Growing businesses often use barter to help manage their cash flow. Excess inventory or services can be traded on an informal basis for small transactions, or larger deals can be worked with a local trade exchange.
With the local exchange, you typically pay an initiation fee, and upon approval, can list a certain amount of your product. Let’s say you make boxes. You list $5,000 worth of boxes in the exchange, so you have $5,000 credit to use toward other services. The exchange may charge the buyer and/or the seller a transaction fee of 6 to 10 percent.
For a smaller company, this can be a great way to keep the cash flow strong while gaining access to products or services you otherwise would have to pay for. For medium-sized companies, there’s a high-powered form of barter referred to as corporate trading.
“With a trading company, a business sells the excess inventory or discontinued product or merchandise,” says Bill Levitz, managing director of New York-based Argent Trading. “It might be a good product, but last year’s model, or maybe the blue ones didn’t sell.”
The minimum sized deal is $250,000 in wholesale value. There are no fees or expenses.
“The trading company buys the inventory for $250,000, and pays them in asset purchase credits each one equals a dollar. These credits enable the holder to use them as partial payment for goods and services.”
Possibilities include advertising, hotel, travel, printing and even manufacturing.
“You are buying everything at market price, not list,” says Levitz. “You also have the ability to put in your contract where the product cannot go.”
This protects your territory from becoming flooded with discounted merchandise.
To use corporate trading:
- Deal with a reputable exchange. Check its references and how long it has been in business.
- Develop a plan on how you are going to use your credits if you trade.
- Be aware that if you can get more than 60 to 70 percent of any deal in cash for your inventory, then you shouldn’t trade it. Once it drops below 60 percent, trading becomes an option.
- You should be getting about three times as many credits as what the real market value is for your product.
- Know that trading isn’t risk free, but the risk is manageable.
“Know who you are dealing with and make sure you trust them,” says Levitz. “Make sure you meet the owners and talk to them. It’s worth a little extra time to check them out.”
How to reach: Argent Trading, www.argenttrading.com
Todd Shryock (firstname.lastname@example.org) is SBN’s special reports editor.