AS A method of payment few things beat money - provided you've got enough of it. But if your cashflow needs help, then bartering your surplus product can be an effective way of buying the goods and services you need.
In the USA, bartering is a 35-year-old industry turning over $6b-worth of products a year. But in the UK formal bartering systems are still at arelatively embryonic stage.
Around the country a number of organisations barter on a local basis, usually within an individual town or city. But by far the largest nationwide network is the London-based Bartering Company which has around £14m of goods and services on its books, pledged by over 550 clients.
Essentially, the company acts as a broker, putting businesses who want to trade through barter in touch with each other. For its trouble, it takes a 10% commission from the company which is buying, but nothing from the seller.
The system operates through a central barter pool into which companies pledge goods. Participants range from large corporations, such as airlines and computer manufacturers, to sole traders such as plumbers and accountants. Around 40 restaurants and 25 hotels in the UK and Ireland are involved.
Bartering works on a system of debits and credits. A company receives credits when its pledged product is bought from the pool, and is debited when it buys products from the pool. It follows proper accounting procedures and VAT is paid separately in cash.
In general, businesses spend credits after they have accumulated them, but sometimes they will be advanced. Aberdeen's 42-bedroom Marcliffe at Pitfodels spent £30,000 on bartered goods such as televisions and Corby trouser presses before it opened last November. Similarly, the Bank restaurant in Horsham, West Sussex, bought around £25,000 worth of wooden flooring, crockery and glass on advanced credits.
In these situations the Bartering Company will not allow a business to spend more than it believes its clients could feasibly use. "We have to be careful because we are dealing with our clients' trade credits," says company founder and managing director Buzz Remde.
The basis of the scheme is that companies barter their surplus - or in the case of hotels and restaurants, empty rooms and tables - so business gained through it is incremental. They have the option to suspend participation at busy periods so, for example, a hotel may drop out of the system during August, or a restaurant may specify that it does not accept barter on Saturday nights.
The fact that it deals in surplus has led to speculation that the Bartering Company is both a product of the recession and dependent on it. But Remde counters this by pointing to the success of US systems which have survived highs and lows in the business cycle across three and a half decades.
Once a company has pledged goods into the pool it receives a Bartering Company cheque book. Anybody booking a hotel room on barter will do so in the normal way and then pay using a barter cheque.
For restaurants, the system is slightly different. Vouchers, signed and validated by the restaurant, are sold centrally to customers wanting to use that particular establishment. The benefit of this system is that vouchers areprinted for slightly more than the average cost of a meal for two, which leaves the restaurateur with an element of excess, known as breakage. So, for example, Zen Group restaurant vouchers are printed at £60 each, although an average meal for two would normally cost around £50. No change is given so the restaurant gains a £10 breakage.
Keith Springer, proprietor at Continental Drift on London's Fulham Road finds this counterbalances the disadvantage of not being able to get volume discounts on barter. "Although you may not get the best price on barter, it is more than compensated for by the fact that people will have a £120 meal and pay with three £50 vouchers," he explains.
Also helping a positive balance is the additional business gained from items not covered by barter, such as food in hotels, and drinks and service charge in restaurants. "The cost of servicing a room which would otherwise have been empty is fairly low, and is more than covered by the profit on food and beverage - I think it's a marvellous system," says Stewart Spence, proprietor of the Marcliffe at Pitfodels.
A further benefit for a new business is the exposure it receives through the Bartering Company. Springer says it has been a useful marketing tool for him. "New people come to the restaurant and they in turn tell others about it," he explains. "This week I have a party for about 70 people which resulted from a recommendation by somebody who came in on barter - so that's an additional £3,500 to £4,000 I wouldn't have had."
Those who have been in the system longest tend to be the least enthusiastic, largely because they have lived through its teething problems.
One of the Bartering Company's first clients, Jeremy Bolam, proprietor of Buchan's in Battersea, London, has mixed feelings about it. He has built up around £4,000 worth of credits but has tended to spend them for the sake of it rather than buying things he really needs. "It's a bit like building up a supply of Green Shield Stamps and then finding there's nothing in the catalogue you want," he says.
The trades he has tried to do in the past have not been straightforward, largely because the companies he has approached have dropped out of the system as they too have built up more credits than they can spend. Another problem is that, because the system deals in surplus, manufacturers use it to offload out-dated equipment. Bolam returned a fax machine he ordered on barter when he was sent a second-hand one which did not match his requirements.
But he believes the service is coming together, and describes the improvements over the last year as "startling". He is presently getting his security system updated on barter, but only after some pushing - initially the security company said it wouldn't do the deal.
Ideally, though, he would like more suppliers in the system which he could use regularly. "If, for example, I could buy all my fish on barter, that would be useful," he explains.
The 18-bedroom townhouse hotel 22 Jermyn Street was the first quality London hotel to join the system. Proprietor Henry Togna says it took him time to work out how best to use barter. "At first it seemed too good to be true, but then I discovered you can't just pick up the phone and ask for 15 new videos," he explains. He has now found that printing is the best way for him to spend his credits. "I would previously have had to pay for brochures to be printed, so the money saved goes straight onto my bottom line."
He too has seen the Bartering Company become a lot more sophisticated in the two years since it started life. But the corollary is that his barter business has declined by 15-20% over the last year, as more quality London hotels have come into the system.
Indeed, because bartering appeals to companies with a high profit margin, participating hotels tend to be top heavy at the quality end of the market. But the Bartering Company is working to change that and bring in more three- and four-star properties, particularly those catering for the businessman.
Any business wishing to join the system has to provide references and undergo a financial check before being accepted. Nevertheless, the Bartering Company will work with businesses in difficulty. "If they are looking to us as a last resort we will not loan them credit," explains new business development director Nick Lindesay-Bethune. "But if they have surplus stock they wish to shift we will work with them."
Bartering is also used by receivers managing businesses and companies with bad debt problems. "A food manufacturer who had set up a new factory couldn't pay his debts in cash so we persuaded his creditors to accept trade credits," Lindesay-Bethune explains.
The Bartering Company is part of the International Reciprocal Trade Association, which governs how bartering companies do business. Through this it links into an international network which enables it to trade with other member bartering organisations around the world. o