How Today's Barter Industry Works

Modern barter is a highly organized, high tech, communications driven industry. At the heart of the industry is the Trade Exchange, an association of business operators and professionals who have joined together to trade their surplus products and services. The exchange serves simultaneously as a market, a communications network, and a clearinghouse for transactions among its members much like a bank.

Member businesses sell their goods and services to other members in exchange for trade dollars, which are valued at the equivalent of cash dollars. With each transaction, trade dollars are debited from the buyer's account and credited to the seller's account. The seller can then spend these trade dollars with other exchange members.

Through association with a barter exchange, member businesses find new customers and earn trade dollars selling their surplus, which they can then spend with other members for products and services.

INDUSTRY SEGMENTATION

Today's barter industry can be seen as a three tiered pyramid with trade exchanges forming the broad base of the structure.

Retail Trade—The trade exchange tier of the industry is frequently referred to as retail trade where small to mid-sized businesses and professionals join together to barter their products and services. Exchange members are serviced by trade brokers who function in a manner similar to securities brokers. Brokers bring buyers and sellers together and serve as business advisors to their clients. They rarely act as principals in barter transactions. Instead their roles,  established by law, are as third party record keepers.

Corporate Barter—Larger businesses such as manufacturers, wholesalers and distributors, often have surplus inventory and production capacity they can trade for needed resources. Rather than taking write down losses or destroying their markets these companies frequently trade their surplus for "purchase credits".

International Barter—Counter trade and international reciprocal trading make up international barter. Counter trade constitutes transactions between governments or multinational companies.

WHERE THE INDUSTRY IS GOING

The Trade Exchange is frequently considered another dimension of the financial industry. However, in addition to providing some of the financial resources businesses need, barter companies provide advertising and sales support to create new revenue streams.

Because it offers so many benefits for businesses, the future of the trade exchange is characterized by continued growth and development. Taking full advantage of these benefits is a powerful motivation for companies to employ a qualified barter company.

As the industry grows and develops, the sophistication and professionalism of companies within the industry is also expanding. The current outlook calls for consolidation of independent exchanges into larger, more sophisticated, electronic clearinghouses where professional barter brokers come together to help their clients increase sales, improve cash flow, and develop new profits.