Departments

As organizational specialization increases, the research also indicates that the approval level for barter and countertrade transactions rises. Firms with either a barter/countertrade department, or a trading company subsidiary, limit clearing authority to major corporate officers, e.g., chairman, president, or vice president for international marketing. Firms handling such transactions through the export department or international division generally delegate authority to lower levels, although in both contexts the extent of delegation apparently varies in relation to the value of the transaction.

Presently in international trade, an exporter may be asked to accept payment in merchandise rather than cash (barter). Moreover, in other situations, such as compensation arrangements or switch transactions, both export and import transactions may be involved. Such transactions give rise to unique documentation and procedural problems. First, the U.S. company having a role in such a transaction should not try to use its standard-form sales or purchase documents. These transactions require special terms and conditions to protect the participant and should be specifically tailored to the transaction. Second, even though no money will change hands, the parties should value the merchandise or services that will be exchanged. This will be necessary for tax, customs, and foreign exchange control purposes. The U.S. Customs Service recommends that the parties seek an advance ruling. In most countries, attempts to engage in barter transactions for the purpose of avoiding these laws will subject the participants to prosecution for evasion. Correlatively, the participant should satisfy itself that all necessary government notifications and forms are filed, just as if it were a cash transaction, and that all values stated are accurate, consistent, and supportable.

Advantages of barter

Under traditional finance theory, a company is worth the present value of its future cash flows. As such, companies can maximize their value by expanding cash inflows and reducing cash outflows. The value proposition of barter to this equation is extremely compelling as it can influence both sides of the equation.

In a typical sale, companies will offer their goods or services in exchange for cash (and equivalent) consideration — a cash inflow. But to support existing and new sales, companies are required to invest in both hard assets, like property, plant, and equipment, and in intangible assets, like human and intellectual capital — a cash outflow. Companies that use barter as an additive function to their existing sales strategies and inventory management processes reap its benefits, thereby maximizing cash flows.

Accountants can advise clients to use barter to achieve specific business goals, including

Cash conservation. Paying for business expenses with trade dollars leaves more cash available for the payment of strictly cash expenses.

Barter lines of credit. Barter can be particularly useful when a business needs to borrow money to relocate, expand or launch a marketing program. A barter line of credit may be easier to get than bank credit because barter exchange networks look at a company's capacity to pay back through demand in the network rather than through traditional collateral. Many of the products and services associated with moving, remodeling or marketing are available in barter exchange networks. Interest on barter lines of credit is paid in trade dollars.

A further advantage of barter arises directly from the makeup of barter exchange networks. Because radio, television and print media companies can run additional advertising spots or ads with little increase in overhead, they often participate in exchange networks. This means network clients can finance ad campaigns by paying with their own products or services.

Help with collection. Businesses can use barter to get value out of otherwise uncollectible debts. Instead of chasing cash, which might be nonexistent, the creditor can give the debtor company the option to pay with its product or service. That product or service is placed in the barter exchange network and its value in trade dollars is transferred to the creditor, who can spend it in the network. A company also can use barter to pay a debt by offering to transfer credit it has earned to a creditor.

Marketing advantage. Because barter purchases represent lower out-of-pocket cash costs, trade dollars often can be earned with little increase in overhead and without advertising or marketing expense.