All About Corporate Barter

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Corporate Trade refers to one of the three major market segments of the barter industry with its primary focus being larger, one-off transactions.

Differing from the retail and community currency barter segments; corporate barter exchanges typically use media / advertising outlets as leverage.

A typical transaction goes something like this:

Company A has an overstock of a certain inventory. The down-side to having any over-stock are as follows:

If sold in the cash marketplace at a discount it may devalue the entire product line – either by creating a perception that the product is a “discount” brand, or by creating friction with existing customers who purchased the product at full market value and now see a discount occurring.

There are costs created by warehousing, moving and managing excess inventory.

It may depreciate further in value depending on the time taken to move the stock [especially where things have an expiry date and/or are seasonal in nature or have a “model” year [i.e. fashion, vehicles, electronics etc].

Excess inventory is a liability on a balance sheet.

Rather than selling these products at a discount for cash, a Corporate Barter Exchange will often offer full market value to purchase these products and, in return, give trade credits.

These trade credits can be used to purchase large advertising campaigns, thereby turning something perishable, into a new source of referrals [more customers = more referrals], and leveraging the value of the stock for media buys.

Because of the size of the transactions, and the method of disposal of this inventory by the barter exchange itself, most media buys are not settled on a pure barter basis, but usually require part of the payment in cash.

Corporate barter exchanges differ from retail barter exchanges insofar that:

They value, negotiate and contractually purchase stock or capacity from each member – often warehousing the inventory themselves.

The risk of depreciation of inventory is transferred from the seller to the corporate barter exchange. If the exchange cannot move the inventory fast then it may end up with expired, or last seasons, stock on its hands.

The corporate barter exchange  directly markets each item that it purchases and often will sell these on the cash marketplace [cash conversion] and it will pool its cash resources to bulk-buy media at a discount equivalent to 50% or more of the available market-price.

Most transactions are independent of previous transactions and the entire cycle is settled, generally, within a defined time period.

Corporate barter is a good concept for the seller, but is also fraught with risks. What happens if the barter exchange doesn’t get media at a beneficial rate? What if they give you barter dollars and offer nothing in return? How will they sell your product – what methods are in place to ensure that they do not actually end up competing against you in the cash marketplace?

These questions aside, there are many respectable corporate barter exchange operators out there and they offer many creative solutions for businesses with impaired assets.

Brought to you by Neha Gupta
Marketing Department
Ormita Australia Limited
http://www.ormita.com.au

2 COMMENTS

  1. Thank you for detailing some of the positive features of corporate barter for companies that are interested in facilitating larger transactions.

    Following clarifies some of the attributes and benefits of corporate barter…

    A corporate barter company, unlike a barter exchange, is not an exchange nor a third party record keeper. It does not have members, but rather clients and is a principal in all transactions.

    Many corporate barter companies not only provide media, but also a vast array of products or services, such as furniture, fixtures and equipment, construction materials, signage, computers, travel, business accommodations, printing, sales conventions and conferences, etc.

    Most corporate barter companies provide media, and other products and services at the same price the client would have paid for the media, product, service or travel, if they purchased it in an all cash transaction, so there is little risk about over paying for purchases.

    Corporate barter companies provide clients with trade credits, not barter dollars, that are used with cash to reduce their cash requirements in purchasing.

    Most corporate barter companies will respect a client’s needs and will adhere to stringent restrictions so they are not selling in competition to the client.

    Companies looking to leverage their excess capacity or production, or underperforming inventories or assets to get full value that can be applied towards their purchasing requirements should work with a corporate barter company that has experience in providing the products and services they need. Their requirements and spending should be carefully planned so that they know before entering into a transaction, how they will utilize their trade credits.

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