MARKBRADY refurbished his offices to the tune of 100,000 two and a half years ago and it didn’t cost him a cent. Instead, he traded the services of his graphic design studio, Square, with everybody from painters and decorators to carpet fitters and cable layers.  That 100,000 would have been painful to find in cash,” said Brady, who joined Tradefirst, a bartering network, four years ago. “I first got into it when I won a job and the client got back to me to say, sorry, they were only going to give it to a Tradefirst member, so I joined rather than lose the account.”  He has no regrets. Today, bartering accounts for 10% of his turnover. He uses it to cover the cost of everything from couriers to telephone bills and accountancy fees. Brady is not alone. According to the International Reciprocal Trade Association, more than 400,000 businesses around the world made $10 billion (¤6.7 billion) worth of transactions of this kind last year, a figure predicted to grow by 15% this year.

 In Ireland, the biggest business-to business bartering network is Tradefirst, which was set up in 2004. It has 600 members, up from 220 two years ago. Members pay 380 a year. On top of that, the buyer pays Tradefirst a broker’s commission of 8.25% on all completed deals.  Applicants to the network are vetted on the length of time they have been in business and the number of other operators in their sector or geographical region offering the same services. What makes trading networks so appealing is that, unlike direct swaps, sellers can hold credit in the bank until they find a service they want.
 
For Brady, a significant benefit is that it offers him a new line of credit while at the same time freeing up cash flow. “I am usually in debt to the system and use it as a way of filling up surplus capacity in the business,” he said. Bartering systems operate around the world and, as Brady has found, come into their own in a recession. One of the best known trading networks globally is Bartercard, which allows members to transact with 75,000 member businesses worldwide. It has seen $2 billion of trades through its network so far this year, up 20% on last year. Its services are similar to a bank’s, including monthly statements and lines of credit, with members having to pass a credit check to join. As with Tradefirst, members are not obliged to accept barter transactions all the time, but can do so when it suits them.

Bartercard, which was founded in Australia in 1991, is a worldwide franchise that does not have a presence in Ireland, but it is seeking a master franchiser here.  If David Hannon, Trade first’s founder, is worried about the competition, he is not showing it. “Competition is healthy,” he said. He believes the “arrival of any well run barter network opposition” could only help cement the idea of business-to business bartering.  Certain kinds of business are of more interest to commercial bartering networks than others. These typically offer generic services such as transport, printing, advertising and design.  When a company joins Tradefirst, it cannot barter with existing clients or suppliers, only with new ones, which gives the service a business development angle. Hannon is marketing it to the hotel sector, offering barter as a practical solution to over-supply in that market.

“YOU HAVE NO IDEA HOW GOOD IT FEELS TO QUOTE THE FULL PRICE FOR A JOB”

The idea is already being tested in other countries. This month sees the launch of Barter Week in Italy, in which thousands of bed and breakfasts will allow guests to offer goods and services rather than cash for accommodation. One small Irish company is also bringing the concept to consumers. Go BarterIreland. i.e., set up five months ago, averages 900,000 visitors a month and its founders, Maureen and Dermot Peakin, are about to launch GoBarterUSA.com. “There is no doubt that bartering has taken off as a result of the recession,” said Dermot. “While money is tight it makes sense.”

For businesses, the main advantage is freeing up money. “The most common barrier to expansion for small and medium enterprises is cash flow,” said Hannon. “Even established companies have restricted budgets, particularly in relation to advertising and marketing. By contrast, most have a flexible supply of their product or service, in the form of spare capacity, and a medium to high gross profit margin. So it makes sense then to use that spare capacity, or stock, instead of cash to buy needs or supplies where possible.” Bartering is easy to administer in terms of Vat and other taxes. “From a Revenue perspective, there is nothing in the tax code that differentiates whether something is paid for by goods and services or by cash,” said Jim Kelly, a tax partner with the accountants Grant Thornton. Information on bartering is available from the Revenue website at revenue.ie. There is a downside to commercial bartering, however; not every business will meet its needs this way. “It suits some businesses better than others,” said Steve Lynch, the owner of Printbase, a Dublin printing company that employs eight people.  He, for example, could do with a paper supplier to barter with, but can’t find one.

Despite this, he is glad he started trading this way earlier this year. “I was looking around for new ways to bring in business and thought I’d try it,” he said. “Bartering systems are a terrific way to fill spare capacity, which is something everybody has got lots of right now.” But the main attraction for Lynch is that bartering eradicates late payments, currently running at 150 days in his sector. “With this, I’m not waiting for payment, I’m not worried about payment and I don’t have to worry that the customer is going to go out of business,” he said. “I do the job and get paid immediately in trade credits, which I can spend with anybody else in the network. That doesn’t just reduce the risk; that gets rid of risk altogether. What’s more, any business I get from Tradefirst is new business. “The deal is that you can’t switch an existing relationship over to it, so it’s all new clients for me.” It has also helped boost Lynch’s margins. “With bartering, you sell at full price, not at a discounted price. You have no idea how great it feels to be able to quote the full price for a job these days, just as I would have a year ago,” he said. Calculating which jobs to barter and which to do for cash is routine for him.  “If it was something that involved me investing in a lot of stock I probably wouldn’t, but if it’s something that requires labour, I will, because I have the a labour to do it,” he said “After that, it’s up to you to be creative about how to use your trade credits for your business. If you told me two years ago that I’d be bartering commercially, I would have thought it was outlandish. But it works really well.”

Publication: Sunday Times Ireland (Business)
Date: 8th November 09