06292017Headline:

Barter – the modern, old-fashioned approach

People traded with each other long before the invention of currency units and the corresponding modern corollaries such as direct debits and credit cards. In the old days people simply traded goods and skills they had for goods and skills they needed. It was known as the barter system and it was a fact of life which worked well for everyone from peasants to the elite.

barter

While barter has many advantages, it is probably best suited to areas either where the exchange takes place rapidly or where prices remain relatively stable.

As the world moved away from artisan crafts and small-scale production towards an industrial society, barter began to fall out of favour. The scale of production and the quantity of raw materials required to sustain it made barter impractical given the limitations of transport and communications during the period. It was simply more practical to arrange the transport of cash over long distances that to try to use barter.

In due course of time transport and communications improved and there began to be an increasing emphasis on working faster and smarter instead of just harder. Companies began to realize that using barter allowed them to maximize their existing assets while preserving their cash-in-hand. An example of this would be a factory using barter to mop up excess inventory and keep production lines running, freeing up its cash reserves for future investment. The popularity of corporate barter has led to the creation of clearing houses to link businesses together.

While barter has many advantages, it is probably best suited to areas either where the exchange takes place rapidly or where prices remain relatively stable. In industries where prices (and therefore costs) can change rapidly, it can be difficult to negotiate appropriate long-term deals, which can result in one or both parties feeling that they have been short-changed.

The other key point of barter is that contracts must be drawn up with complete precision and clarity so that both parties fully understand and agree to the nature and duration of the arrangement.