What are the pros and cons of bartering?
Bartering has been around since ancient times. Before the use of currency, people could only purchase goods and services through barter trade. However, is it a suitable method for businesses of today, especially for small companies?
Bartering is basically a system of exchanging goods and services. One company gives up ownership of goods and services to another party and receives other goods or services in return without involving a monetary transaction in cash.
For example, a website design startup could offer their service to a digital marketing agency if the other party would do their social media plan in return.
Nowadays, it is practised throughout the world on domestic markets and international trade. Also, thanks to the prosperity of the Internet, companies can trade more efficiently, making low-value transactions profitable by reducing management costs and facilitating the matching of supply and demand.
Despite all that, barter trade is not always straightforward. That’s why before you decide to jump in, here we will show some advantages and disadvantages to consider before making a deal.
You don’t know how bartering works? Let us explain it to you in our article “How does a bartering system work?“.
Advantages of barter trade
There are several advantages that lead managers and business owners to say yes to bartering.
Businesses have limited options of bartering! They could trade one related product for another, two completely different products or even services rather than just material items.
There’s nothing you can’t get with barter!
One of the main benefits of the barter trade is that businesses not only get what they want or need, but also they receive it without spending a penny. It allows small companies to keep considerable amounts of cash on reserve, which is significant for new businesses.
Barter trade is a simple system from the complex of international trade and modern monetary systems such as the adverse balance of payments and foreign exchange crises, being more suitable for international trade.
Expand your customer base and build a strong network of working relationships
Barter exchanges are valuable tools for small businesses to create new clients while maintaining cash-paying clients.
Customers would refer themselves to others or become with time into strong full-fledged cash business arrangements as both parties would have developed trust for one another.
No overexploitation of natural resources
In a barter ecosystem, natural and personal resources are perfectly produced to meet the needs of the exchange without involving any wastage.
No concentration of economic power
The extreme concentration of wealth is not focused at one particular place in the barter system since there is no possibility of storing commodities.
Read more about barter for business in our article “What is corporate barter?”.
Disadvantages of barter trade
While barter trade has immediate benefits, as we have seen above, there are also certain disadvantages.
Absence of common measure of value
The role of money as a measure of the value of goods might be absent in the barter system. Since an exact value cannot be assigned, the trade rates for a commodity will be as many as the number of types and qualities of goods that it can be exchanged for.
Lack of divisibility
Since goods and services are not created equal, it isn’t easy to ensure that both parties’ exchange of value is fair. If one party feels that what they are giving is more valuable than the other party is offering, issues might arise.
Lack of double coincidence of wants
Bartering is done when two parties desire an exchange of commodities that are mutually needed by each other. Thus, in the absence of such coincidences of wants, there will be no barter transactions.
Even if there is a coincidence of wants by agreeing to a future exchange, companies should still be cautious since a lot could change in a couple of months.
Your business can’t rely on too much bartering. Companies need a steady flow of cash to keep their business stable. Employees, suppliers and particularly government tax collectors would expect monetary payments.
Problem of transportation
It’s not easy to transport goods and services in the barter system. Risks of transportation and inconveniences can only be removed with the use of money.
In conclusion, bartering can work in multiple situations, and businesses only need to consider both the pros and cons before saying yes and always think about the win-win situation.
If you are convinced in trying barter trade, Baggl is an online marketplace where freelancers and business owners can trade what they do or have, using a combination of cash and barter. Our members can barter and haggle with one another utilising over price and the cash vs. barter ratio, allowing them to always make the best deals.
Get in touch with us to find out how to get started.