Top of the swaps

10 April 2002 by
Top of the swaps

Buying new equipment or software can leave a large dent in a hotel or restaurant's cash reserves. Mick Whitworth looks at how bartering has been given a modern-day twist to help hospitality companies pay for the goods they need.

Even when money is tight, Devon hotelier Nigel Bell can still offer his chefs the occasional bonus. However, instead of an envelope full of readies, the owner of Sampsons Farm, near Newton Abbot, packs them off for a well-earned break at a Cornish hotel. And rather than hand over a cheque or credit card, he pays for their rooms with Keys - a barter currency devised for the hospitality trade by HotelSwop. No cash will change hands, but everyone is happy.

HotelSwop is one of a handful of UK businesses operating an online trade exchange. Sometimes called regulated barter or reciprocal trading, this is a system that allows companies to settle bills with goods and services rather than cash.

Spare capacity HotelSwop is also the first exchange of any substance geared especially to hospitality - an industry with a notoriously erratic cash-flow and a ready supply of spare capacity for bartering. It claims to have 65 hotels and restaurants in its membership and at least 22 supplier companies, ranging from advertising agents and accountants to children's entertainers. By next year it hopes to have raised its membership to well over 200. Founder Colin Richards believes that, within a decade, trade credits such as HotelSwop's Keys will be as readily accepted as Visa cards.

How it works is simple: if a hotel wants to buy software, say, then instead of handing over cash to the supplier, it "pays" in hotel rooms directly into an account held by HotelSwop. The supplier can then either stay at that hotel (or allow someone else to do so) or use any of the facilities of another member of HotelSwop to the value of the goods provided.

To participate, members pay a joining fee of £499. Each time they make a sale on trade credit to another HotelSwop member they pay a 6% merchant's fee, comprising 5% cash and 1% trade (that is, rooms or meals to the value of 1% of the transaction).

For members, there are two main benefits. First, the more invoices that can be settled in trade credit, the more cash is left in the bank to settle tax bills, rates and other unavoidable cash demands. Second, trade exchanges can trim costs dramatically. Members will typically be businesses with a high gross margin and regular spare capacity or excess stock. Barter sales are made at full retail value, but the true cost to each business will be substantially less (see panel).

For a hotel or restaurant, purchasing with trade credit looks like an ideal way to buy furniture, carpets or kitchen equipment - major one-off purchases that would otherwise make a serious hole in cash reserves. "We've got one guy who has funded an entire extension on trade credit," says Richards.

To a degree, it will also work for bulk consumables, but suppliers of these are often working on smaller margins and may be more cash-focused.

Richards formulated the idea for HotelSwop four years ago while putting together a Web site for his hotel, the clifftop Gara Rock near Salcombe in Devon. He had always felt that hoteliers should be able to swap rooms when they needed a holiday, and saw the Internet as an ideal medium to achieve this. "But within four months," he says, "I realised I had hit on something much bigger."

HotelSwop evolved from a holiday matchmaking service into a fully fledged purchasing and marketing operation: finding hotels and suppliers interested in trading by barter, then marketing those businesses to other exchange members.

Regulated trade exchanges are not new. They first appeared in the USA in the 1970s and, here in the UK, Bartercard is the market leader. It has 2,500 members across a wide range of trades and offers access to many more suppliers, including the overseas members of the international Bartercard organisation, which turned over $1.5b (£1.05b) in "trade dollars" last year.

Bartercard has a team of account managers whose prime job it is to help members find ways to spend their "trade pounds". UK managing director Mike Timoney says: "We make money out of velocity of trade, so it's in my interest that they spend their credits as fast as possible." However, if an exchange does not offer a sufficient variety of places to spend the accumulated credit, the whole system will grind to a halt.

This is one of the biggest gripes. Carl Vockins, assistant manager at 57 Pont Street, a hotel in Kensington, London, and a Bartercard member, says that the system is easy to use but credits can mount up quicker than the business can spend them. "Because every bill is a couple of hundred quid, it does tend to build up quickly," he says.

Bartercard, which claims to be the world's largest trade exchange, has recently struck a deal to market HotelSwop's members to its own participants in order to offer its clients greater travel choice. It's an acknowledgement that even the big exchanges struggle to provide sufficient outlets for members to spend their trade pounds.

While Bartercard is aiming for market dominance, HotelSwop wants to become "the definitive barter business for hospitality", says Richards. Both organisations, however, will need greater volume and more variety of members to create a truly liquid market.

Even committed barterers, like Sampsons Farm's Bell, see limits to what bartering can achieve. "There's nothing wrong with the idea, it's just getting people to trade," he says. He is currently running an "overdraft" of HotelSwop Keys because, while he's spending his credits, not enough people have been spending with him during the quiet winter months. Come summer, he won't have the free capacity to give rooms away.

Bartercard member Alasdair Swan, general manager of Southampton's Botleigh Grange hotel, is also cautious. "I've found it useful for selected items, and it has helped my cash-flow, but you have to be careful how you control it," he says. "They will set you up a rolling line of credit that will go as far as you want. You can do a complete refurbishment - they'll find you architects, builders, solicitors. But at the other end, you've got to be mindful of the fact that you are not getting pounds, shillings and pence back into the hotel, which might be a problem when you've got staff to pay."

In the meantime, Bartercard and HotelSwop will be hoping operators such as Swan will throw caution to the wind and spend, spend, spend. Otherwise, they might find out why barter has historically given way to hard cash.

Contacts

HotelSwop
The Malt House, Ebrington Street, Kingsbridge, Devon PQ7 1DE
Tel: 01548 854555
Web site:
www.hotelswop.com
Bartercard UK Bartercard House, Brooklands Close, Sunbury, Middlesex TW16 7DY
Tel: 01932 772772
Web site:
www.bartercard.co.uk

How bartering can cut costs

Plymouth accountant Mark Lawson, a HotelSwop trade member, gives this illustration of how bartering can dramatically reduce outgoings:

A hotel wants to acquire £3,000-worth of software. If it pays in cash, it will be £3,000 worse off. Instead, it decides to barter, suggesting that the hotel provides the software supplier with £4,000-worth of hotel rooms to be taken on dates of his choice.

Because the hotel always has spare capacity, the actual cost of providing rooms will be small, perhaps as little as £400 or £500. If the software provider agrees, the hotel has effectively purchased £3,000-worth of software for only a few hundred pounds. The software supplier in turn has received £4,000-worth of rooms in return for providing some software which, although retailing at £3,000, would have a very low unit cost.

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