Ormita: Multilateral Barter Explained
0 likes1,001 views
Barter is a trade system that allows businesses to exchange goods and services using 'barter credits' instead of cash, maximizing efficiency and inventory turnover. It accounts for over 30% of global financial activities, with a significant number of Fortune 500 companies participating. Barter exchanges facilitate transactions by acting as a third-party record keeper, enabling clients to trade within a network without needing to barter directly with each other.
Ormita: Multilateral Barter Explained
- 1. WHAT IS BARTER? Barter is Barter or trade is a powerful tool that represents a solution for companies with available inventory or services. By accepting payment in “barter credits” where cash is sometimes difficult to get, a business maximises their efficiency by increasing inventory turnover and billable hours. Using the “barter credits” earned, that company can purchase goods or services they want - without paying cash. A Multi-Billion Dollar Industry According to the US Department of Commerce, barter exchange accounts for more than 30 percent of all financial activities world-wide while the International Journal of Hospitality Management and the Michigan State University together claim that approximately 70% of all Fortune 500 companies engage in barter. The American Association of Advertising Agencies claims that 4 out of 5 media companies also engage in barter in order to achieve maximum value from what would otherwise be unsold time and/or space. World-wide, governments and companies continue to use barter to reduce surplus time and/or inventory, bolster sales and ensure that production facilities run at near capacity. Barter continues to carve out an important place in the world economy. How Does Barter Work? A barter exchange offers an alternative distribution and sales network. Instead of letting products or services go unsold, or requiring you to sell for reduced prices, a barter exchange allows the sale and purchase of goods and services using other goods and services to facilitate the transaction. Clients of a barter network use “barter credits” to account for the value of sales and purchases. Each barter credit is the same value as $1. The barter exchange acts as a third-party record keeper and provides clients with monthly statements that reflect all trade sales and purchases. Members do not need to barter directly. Instead they can sell to one member and buy from another. This solves the issue of the seller not needing what the buyer offers and allows transactions to take place that otherwise would not be possible. The value of all credits within the network equals zero. This is because: When you sell a. your account is credited b. the buyers account is debited This means that the buyer now owes you (or someone else in the network) the amount that they are in debt. No value can “disappear” in the network and everyone expands who they can trade with as more people participate in the barter exchange system. PLUMBING COMPANY A plumbing company provides a service to a hotel. The seller authorises the transaction, transferring barter dollars from the purchaser’s account. A RESORT HOTEL A law firm uses it’s barter dollars for meeting rooms at the hotel. Plumbing Services Legal Services Air Time Hotel Rooms Trade Dollars Trade Dollars Trade Dollars Trade Dollars LAW FIRM The radio station uses its nearly earned barter dollars to purchase legal services from a corporate law firm. A RADIO STATION The plumbing company uses barter dollars to buy advertising on a local radio station.