Barter Clubs
By
James Harvey Stout (deceased). This material is now in the public
domain. The complete collection of Mr. Stout's writing is now at
http://stout.mybravenet.com/public_html/h/
>
Jump to the following topics:
- There are
many types of barter clubs.
- We fill out an
application.
- We might need to
sign a contract.
- The club will
probably charge fees.
- The
club might have limitations on the types of businesses which are
accepted.
- In
some clubs, we pay with the club's own credit cards or checks.
- Other
clubs use one-to-one exchanges instead of checks or credit
cards.
- We
add our barter-club trades to our business' bookkeeping
procedure.
- Before
joining the club, we can consider its suitability for our
needs.
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:
- 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.
- Information regarding our product or service. What are we
offering to the other members?
- Financial data. This data can include our business
bank-account number, personal bank-account number, trade
references, and a credit card number.
- 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.
- 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:
- 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).
- 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.
- 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).
- 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.
- 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.
- 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:
- Some clubs issue checks, which are similar to the ones which
would be issued by a bank.
- 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.
- Show the contract to an attorney.
- 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.)
- 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).
- 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.
- Contact the Better Business Bureau. The BBB might have a
record of complaints against the barter club.
- 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.
- Judge the credibility and professionalism of the club's
brochures and newsletters.
- 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.
- 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.