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Barter Clubs

                                                By James Stout, Writer for BarterNews

There are many types of barter clubs. A club might be franchised or independent, nonprofit or profit-oriented, business-oriented or social-service-oriented, informal or highly structured. The details vary from one club to the next, but we can explore the similarities in membership fees, service charges, policies, and ways of operating. (The word "club" simply means "organization"; it is not a club like a social club.)

We fill out an application. Certainly, a business-oriented barter club will require more information and professionalism than is required in some casual, non-profit clubs. On the application, we can expect questions regarding some or all of these matters:

  1. The people who will be using the membership. When we join, other designated people might be able to purchase items on our account. For example, our family members might have this privilege. In a business, the owner will join the club, but the purchasing agent and other officers might have permission to use the account.
  2. Information regarding our product or service. What are we offering to the other members?
  3. Financial data. This data can include our business bank-account number, personal bank-account number, trade references, and a credit card number.
  4. Our credit history. The club will extend credit to us, so we need to show that our financial history has been stable, as suggested by our credit rating, our number of years in business, any bankruptcies, etc.
  5. Business data. This data might include our business license number, contractor's license number, etc.

We might need to sign a contract. If the terms don't suit us, we can ask for changes in one or more of the clauses. Because there are many different types of businesses in a barter organization, the standard membership contract might not meet the needs of everyone. We can show the contract to an attorney, to make certain that the details suit our requirements; perhaps we can find an attorney who will trade this service to us in exchange for our goods and services. (The club might have a member who is an attorney, but we will not be able to pay this person with the club's units until after we join.)

The club will probably charge fees. Some non-profit clubs charge no fee; other charge only a small fee which might be based on a percentage of the cash value of each trade. The business-oriented clubs might have these additional charges:

  1. An initial fee, to join the club. The amount might be in the low hundreds to the low thousands of dollars, depending upon a variety of factors: the size of our business, the geographical range of our business (local or nationwide), etc. We might have some options:
    • In one club's "introductory program," we pay only $55 down on the membership price. The rest of the fee is deferred until we have had at least $200 in sales or purchases through the club.
    • At another club, there is a $245 initial fee but, as soon as we join, we receive 245 units which are equivalent to $245 in trade. This amount also covers the first year's dues (at $36 per year). We can spend those units immediately. The club gets the units back (in the long run) through its 10 percent service charge on each trade -- 5 percent in cash, and 5 percent in units. We can pay in installments -- $70 down and the rest in six monthly installments (at 12 percent interest), or with $25 down and the rest in 12 monthly installments (again, at 12 percent interest).
  2. Annual dues. The amount might be hundreds of dollars. Some clubs will allow us to pay for a portion of the dues in the form of units, and the rest in dollars.
  3. A service charge. This is the amount which is paid to the club for each transaction which occurs among the members. The service charge is calculated as a percentage of the cash value of the trade; this percentage is usually between 5 percent and 10 percent. A club might have one of the following policies:
    • Both the seller and buyer pay a service charge.
    • Only the seller has to pay a service charge.
    • The service charge might be payable in units. For example, one club requests a 10 percent fee, paid in units -- but the club still needs cash for items such as postage, telephones, utilities, and taxes, so it charges a high annual fee of $250 (payable in cash only).
    • Variable fees. Some clubs have variable service charges; for example, they might reduce the percentage on a large purchase, so that a $100,000 real-estate deal will not require the usual 10 percent fee (at $10,000).
    • The service might be payable in goods or services. One company which coordinates one-to-one deals (instead of using "units") charges a 15 percent cash commission from both parties in the deal; however, the traders can give the broker twice the amount of the commission in goods or advertising. In other words, if a publisher trades $10,000 worth of ad space for $10,000 worth of radio ad-time, it owes the broker $1,500 cash. But, instead of paying the cash, the publisher can give twice that amount -- $3,000 -- in additional space. The $3,000 worth of space goes into the broker's inventory, and can be used in his own deal at another time. The 30-percent fee might seem excessive, but many businesspeople accept this option, particularly if they are offering services which are ephemeral -- hotel rooms which haven't been rented anyway, or ad space (or ad time) which hasn't been sold (and will be lost forever as the available time-slot passes).
  4. There might be additional fees: carrying charges, interest on our account, penalties for overdrafts, or an extra fee if we use this club's units through an affiliated club.

The club might have limitations on the types of businesses which are accepted.  

  1. Some clubs accept only established businesses. One club owner said that a merchant who wants to join must have a sizable inventory and a willingness to commit up to $1,000 in barter sales; those qualifications mean that other members are always dealing with first-rate firms. Another club owner said, "We're not looking for back-alley mechanics or basement merchants. We want only licensed tradesmen and the good, reputable businesses." (Kansas City Star. By Dianne Stafford.) Other clubs will accept virtually anyone.
  2. Some clubs limit the number of businesses within each category. Obviously, if there are too many dentists or printers (or another type of business) in the group, none of them will get enough barter-customers to make their membership worthwhile. When a club acquires the proper number of members in any category, it does not accept any new applications in that category. Other clubs do not restrict the number of members in any category.

In some clubs, we pay with the club's own credit cards or checks. Those clubs have their own private "money" system, using cards or checks which they have issued; the values are expressed in terms of barter-club units (which are equal to $1 each). Barter clubs use various systems:

  1. Some clubs issue checks, which are similar to the ones which would be issued by a bank.
  2. Some barter clubs issue credit cards. Sondra Schoenberger explained (in Careers Magazine, July, 1980), "It works the same way a charge card does, with one important exception. With your charge card, you make purchases during the month, and at month's end, the charge slips go to the store or the bank. They are then run through a computer, and you get a statement and a bill. With barter, the charge slips come to us, and we run them through our computer. You get an itemized statement, but no bill."

Other clubs use one-to-one exchanges instead of checks or credit cards. When I was the programs assistant for a barter club, I wrote a description of this type of trade: "How is a trade made? First, call us to say what you need, or what you want to trade away -- a skill or some goods (furniture, food, firewood, lumber, a car, etc.). We'll take your name and phone number. If we can't find what you need in our 'skills file,' we might put the request onto our bulletin boards throughout the city. The phone number which we give out is ours (not yours), to protect you from bad offers and annoyances. When someone calls us, we will ask what they could give you in exchange, or what they want from you. Then we will call you, to tell you about the possible deal. The other person won't call you first; we will, so it will be easier for you to say 'no' if you want to do so. But if the deal does interest you, we'll give you the person's number, so that you can call the person."

We add our barter-club trades to our business' bookkeeping procedure. A barter deal is entered at its normal cash value; the bookkeeping system works the same as if cash has been used. If we need some help in adapting our barter transactions into our system, we can ask the barter-club director -- or we can call a bookkeeper or accountant who is a member of the club (and whose services can be acquired with barter-club units).

Before joining the club, we can consider its suitability for our needs.  

  1. Show the contract to an attorney.
  2. Consider your profit margin with regard to the service fees. For example, if the service fee is 10%, but our profit margin is 8%, we will lose money on every transaction. (Refer to the chapter regarding cash flow.)
  3. Consider our need for new customers. We might not need new customers if, for example, our schedule is always full, or if we are already selling all of our available products (as in the case of a craftsperson who can produce only a limited number of wood-carvings).
  4. Ask about the possibility of changing the contract. In some cases, the barter-club owner will allow us to alter the contract, to accommodate our special needs.
  5. Contact the Better Business Bureau. The BBB might have a record of complaints against the barter club.
  6. Be certain that the members have the goods and services which we need (and be certain that they are within our geographical area). Even if some of the members have what we want, those members might be inactive. If this is a new club, it might have a limited variety of members.
  7. Judge the credibility and professionalism of the club's brochures and newsletters.
  8. Consider the age and size of the club. Perhaps the club is new and untested. We might feel more confident if we learn that the club has been operating for 10 years, with branch offices in 10 cities, and 10,000 members total, doing a total of $10 million of trading each year.
  9. Talk to some members. Don't meet with the members who are offered as references by the members; those members have probably been hand-picked for their positive bias. Instead, ask to see the membership list, so that you can choose several people to contact. Ask the members for their opinions regarding the club's operations. One club presents a list of 75 members who have received new sales from $30,000 to $300,000; the members' addresses and phone numbers are available upon request.