Fair Trade

Contributing Business Writer

Collette McKenna Parker

October 1, 2008

S everal years ago Stan Thomas's company, Magellan Transit Media, hit a slow phase. It's a company that places ads on local trucks, and Thomas had too few advertisers and too many trucks that wanted the ads. Revenue wasn't coming in, and the business was in trouble.

But being in the advertising business, Thomas was familiar with the concept of trade - you know, I'll give you an ad for one month in exchange for a month's supply of lunches from your restaurant. It's good, old fashioned barter, and it's actually a lot more sophisticated than it sounds.

Thomas is a member of International Monetary Systems (IMS), which is a 23-year old business-to-business bartering company based in Wisconsin. Thomas could offer an advertiser (existing or new, as long as they were in the IMS network) an ad placed on a truck; he would negotiate the details, and based on the cash value of the ad Thomas would get credits in his IMS account. Because he ran the transaction through IMS, he could now use those credits for purchases with any other IMS member.

In the true sense of barter, you have to find someone who has what you need, and also who needs what you have. That can be time consuming, or virtually impossible. Business-to-business exchange networks like IMS are barter, "but so much bigger and more complex because it's electronic currency," explains Krista Vardabash, IMS's director of marketing. "This currency makes the system flexible so businesses can get what they need."

It sounds confusing, she says, "but basically we enable our members to take whatever product or service they have and turn it into a currency to buy whatever they need." IMS is a national bartering company with a network of 18,000 businesses in 42 U.S. markets who can swap services and products. The beauty of this type of trade is, as Vardabash explains, that businesses do not have to make a direct swap. Since every business has an online account, they can fill it up with barter credits by doing work for one company, and spend those points at a separate company (as long as they're all in the IMS network).

Indeed, Thomas orchestrated his own trades when he was high on supply and low on demand, but he wasn't limited in his returns. He has used his barter credits for restaurants, airline tickets, hotels, a new roof for his office, a honeymoon to St. Bart's and even salaries. Because - at the time - the company was in financial trouble, Thomas made a bold move. He asked his eight employees to take a 30 percent reduction in salary; he compensated that 30 percent, plus another 15 to 20 percent, instead with his barter points. The employees did not take home as much cash, but instead had access to thousands of businesses with, for all practical purposes, a pre-paid credit card.

During the hard times Magellan used barter to pay for office supplies, a fax machine and "anything and everything I could pay for with barter," he says. "Before I spent a nickel I checked to see if I could get it through barter points."

Thomas estimates last year he accrued $300,000 worth of barter points through IMS, which was about 20 percent of his total revenue. The ads placed on those trucks would have otherwise gone unsold; he traded inventory that wasn't being used - and at the full retail value, rather than a discount rate - to increase his bottom line, and he didn't have to ask customers for their precious cash, either.

"It makes a lot of sense for me because when I'm not at capacity, the media would be going to waste. So I expand the barter. I may sit on the credits but they don't expire," says Thomas.

The barter system takes some getting used to, however.

For one thing, IMS is not alone. Trade exchanges exist all across the country, including three in Atlanta. Barter Consultants International, Advantis International Inc., and The Barter Company are headquartered here and include members like Airtran, Six Flags, The Fox, and pro sports teams like the Thrashers and Hawks.

There are also small, local-only exchanges. Some are reputable, some are not. The International Reciprocal Trade Association lists exchanges and can help businesses select the right barter company. One danger is that small exchanges underestimate the complexity of the system and go out of business before people can cash in their trade. Vardabash, who was the director of IRTA for seven years, received many phone calls from frustrated business owners who had invested thousands of dollars of traded services and now had no way to recoup their efforts.

"Most of the other exchanges aren't bad, they're just different. Obviously, it's logical: the larger the network the more goods and services that are available to get with trade credit. That doesn't mean that other small exchanges aren't good; they might offer other local services," says Vardabash.
 
Also, you have to beware of people that inflate the value of their products or services to obtain more barter points. Thomas often asks a business to give him a quote in cash, before he mentions IMS. That way, he knows how much they would charge him if they were really trying to get his business.

Not every company in Atlanta participates in a barter system. For Thomas, that means researching a restaurant or business before he prepares to make a purchase. And, if he arrives at the restaurant only to learn he can't use his points there, "I pull out my American Express and don't worry about it," he says. The credits never expire and rollover from year to year, but some people get frustrated that they can't always use their barter credits where they want.

"It's not easy," says Thomas. "Some people think if it doesn't work exactly the way I want it to work, than it's not for me. Years ago I just started dabbling with IMS and barter; I was trying to build value for the company because I had unused inventory. I could gain something by putting the ad on their truck. Over the years I've learned how to spread it around to vendors, use it personally and use it to give incentives to clients and employees. I've gone from the grammar school of bartering to the college ranks," he says.

Barter is not free, either; IMS charges a 7.5 percent fee for each transaction, plus a monthly maintenance fee of $15.00 cash and $15.00 IMS trade dollars. And, it's recognized by the IRS, so you'll be paying taxes on your credits. According to IMS, barter trade "is treated and reported the same as cash." That means that your annual sales into the IMS network are reported to you and to the IRS as part of their service to you and in compliance with IRS guidelines.

But as the economy tightens more - and more - barter can serve a purpose and save some cash.

"I've got two kids in college. It's been a crimp in the daily budget. I'm trying to do as much barter as I can," says Thomas. "I tried to talk to the dean at school, but he wouldn't go for it."

Related Links:
Barter Consultants
www.barterconsultants.com

Advantis International Inc.
www.advantisinternational.com

The Barter Company
  www.barterco.com

International Reciprocal Trade Association
www.irta.com

Photo © Orlando Florin Rosu | Dreamstime.com

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