How does a bartering system work?

Illustration of baggl’s trading scale that is used to define the ratio of trade credits and cash in baggl’s bartering system

What is barter? What is bartering?

Bartering is the economic operation whereby one company gives up ownership of a good, a group of goods or provides a service to another company and receives another good or service in return. This exchange does not involve a monetary transaction in cash, but can, in some cases, be valued via a unit of account specific to the exchange network, known as a credit trade unit. 

Born in the United States in the 1930s, bartering originally concerned only the financing of radio or television programmes (soap operas) in exchange for advertising space. It has gradually spread to all goods and services produced by companies, whatever their size, structure or sector of activity.

How can I improve my cash flow?

Bartering is now practised throughout the world, both on domestic markets and in international trade, and has taken on new momentum since the 2000s thanks to the Internet. The Internet allows businesses to trade more quickly and easily by facilitating the matching of supply and demand. By minimising management costs, the Internet makes low-value transactions profitable and opens up the system to smaller companies.

There are a number of advantages that lead managers to opt for this solution. From a financial point of view, bartering avoids cash outflows and reduces the costs of business development. But that’s not all, it also allows for cash flow optimisation and more flexible stock management as it can be a complementary sales method.

Business-to-business exchanges are a way of adding value to under-used or no longer needed machines, of making the most of the resources available to them, and of improving the quality of their services. Further examples for such an exchange are under-utilised machinery, under-utilised labour or dormant stocks, for products or services that are useful to the company and in turn, generate additional business and therefore potential revenue. According to specialists, the practice of business-to-business exchanges, which act as a real economy, can optimise unused assets (3-10%) and generate between 3 to 4 times more revenue.

The exchange is a complementary financial lever, providing liquidity to the company and can even strengthen its equity capital. Indeed, each time a purchase is substituted by an exchange, the company preserves its cash flow and earns the amount of its gross margin on the transaction. This additional liquidity can facilitate the financing of current purchases or an investment thanks to a budget that it has better control over and a better-balanced accounting system.

How can I barter?

Web portals such as baggl, a place of exchange par excellence, are therefore a privileged medium for developing bartering. Internet platforms offer companies the opportunity to group together to exchange their products, stocks or services between professionals within a secure, legal framework.

All transactions are monitored by a broker in order to explain the main principles of this type of exchange: legally qualified as two or three cross-sales, with receivables that are extinguished by payment by way of compensation (rather than in cash), from the moment these invoices are addressed, the taxation and accounting records are the same as for traditional sales.

Who can I barter with?

Facilitating access to bartering, these sites have already attracted many companies in the United States. Popular with small- and medium-sized enterprises, registration gives access to an exchange. It is the customers themselves who establish the value of the product or service in view of its monetary value on the market. Some adjustments are possible, especially for larger companies, so that they agree to level out their offerings to a wider range of members with whom they can engage in exchange transactions.

Case study

A web agency wishes to renew its furniture for an amount of 10,000 euros. Rather than buying this furniture in cash, it uses an inter-company exchange platform and exchanges the production of two websites, each with a market value of €5,000, for this furniture. In the end, to produce these two websites worth €10,000, the web agency had a production cost of €5,000 (assuming a 50% margin). It therefore earned its gross margin on the exchange. The acquisition of this furniture at €10,000 will have cost it €5,000 in cash via an exchange, as opposed to €10,000 in cash if it had paid for it in cash.

How can barter open up new opportunities?

The practice of inter-company exchanges makes it possible to establish relations with companies that, a priori, would be neither suppliers nor clients, around “win-win” operations and to bring them together within a network, a territory or a community of interests. This type of relationship can, in the long term, lead to partnership collaborations in various forms (traditional sales, subcontracting, the grouping of companies, etc.).

The exchange allows the company to make itself known and sell its products or services to new partners and potential future clients. Access to an inter-company exchange platform enables it to benefit from an additional commercial force, to boost its turnover.

Read more about barter for business in our article “What is corporate barter?”.

Trading using a bartering system

The company that wishes to practice business-to-business exchange has two solutions: it can exchange on an ad hoc and informal basis with its usual partners and gradually build up a network of partners. This practice remains limited, as these partners will not always have the goods or services it needs at the right time. The search for exchange opportunities will be the responsibility of the entrepreneur; however, this is time-consuming and runs the risk of keeping unused assets that are difficult to exchange for a very long time. 

Alternatively, the company can use a broker that has already set up its own exchange network, which allows transactions to be optimised. In fact, the business-to-business exchange system plays three main roles: The broker intervenes upstream of the exchange, in a strategic anticipation approach. Through an audit of unused assets and the company’s usual purchasing strategy, the broker can determine the needs and offers of goods and services that can be acquired in compensation, maximising the direct and indirect benefits that can be obtained. The broker helps to determine the exchange value of the goods and services.

It often provides the company with the ability to script its offers and find the right complementarity, which is particularly useful for small- and medium-sized enterprises, which do not have the internal skills and time to do so. The existence of a selective network, organised by the system, allows for a quasi-auto-regulation of exchanges, because all the members of the network are interdependent on a system in which each member is dependent on the good behaviour of the other. The broker is a single point of contact that guarantees the traceability of exchanges at each phase of the operation: signing of contracts and order forms, verification of deliveries, administrative follow-up of operations, and accounting.

The broker is a facilitator who responds to the mutual needs of companies at a given time by selecting, diversifying and increasing the number of companies in his network and then, on an ad hoc basis, by finding the best-placed partner. In fact, it knows from day to day in which sector of activity and for which client to identify offers and needs. The response time to a request is thus shortened and sometimes allows the applicant to know in almost real-time the possibility of making an exchange. In addition to this role of matching and negotiating, which can go as far as the conclusion of the transaction, the broker can become a stakeholder in the exchanges. To make exchanges more fluid, the system can keep in “stock” on the electronic platform or temporarily buy goods that have not found a buyer.

What are the benefits of barter?

Unlock Potential Value

Release value in slow-moving or excess stock, rather than it sitting around collecting dust and tying up funds.

 

Reduce Spare Capacity

Trade your spare capacity or under-utilised skills, services and expertise, with a cash contribution towards fixed costs.

 

Entice New Customers

Attract new customers by accepting a combination of Cash and Trade Credits e.g. 40% Cash + 60% Trade Credits (barter)

 

Reduce Cash Expenditure

Reduce your cash expenditure and use barter to buy the products and services needed for your business or project

Learn more about the advantages of bartering in our article “What are the Pros and Cons of Bartering?

But how does baggl work? 

  1. Create a listing

Whether you’re buying or selling, it’s completely free to create a listing and takes less than 60 seconds.

Whoever creates the listing can set their target price or budget, as well as their desired cash vs barter ratio.

The more information you provide, the more success you’ll have in finding a customer or supplier, as we use this information to match-make… kind of like a dating site!

  1. Receive bids, offers and quotations

Members can communicate directly with one another, allowing you to barter, haggle and negotiate in order for both parties to get the best possible deal.

It’s important to be realistic when negotiating prices and budgets e.g. don’t over-inflate or completely low-ball, as it’s unlikely that you’ll have much success!

  1. Complete & Review

Once the buyer has confirmed the transaction as ‘complete’, payment will automatically be released to the seller, and both parties can then review one another.

Members can buy and sell with confidence, knowing that funds will be held and protected until a transaction has been completed. When providing a review please be completely honest, as this will help us maintain a safe and trusted marketplace.

Who is baggl?

baggl is the contraction of bartering and haggling. It is a new online barter marketplace that enables businesses to trade what they have for what they need, using a combination of cash and barter.

Get in touch with us to find out how to get started.

Categories: Barter, Business Support, Small Business, SMEs, Start-ups
Menu

We are using cookies on our website

Please confirm, if you accept our tracking cookies. You can also decline the tracking, so you can continue to visit our website without any data sent to third party services. You can view our cookie policy via the link at the bottom of our site.