Barter, is defined as "a trade or exchange of goods or services without using money." Its origins are traced back to the dawn of mankind. Early bartering was done on a one-on-one basis and is still used today between some individulas and businesses on an informal basis. However, Modern Barter and Trade has moved beyond the old one-on-one barter concept by practicing third party barter whereby the buyer is not obligated to purchase from the seller and vice versa. Rather, in Modern Barter and Trade, a barter exchange operates as a broker and banker and trade credits are used as a unit of exchange to facilitate trading amoung multiple companies and individuals. Modern trade and barter has developed into a sophisticated tool to help businesses increase their efficiencies by monetizing their unused capacities and excess inventories. The worldwide organized barter exchange and trade industry has grown to be an 8.0 billion dollar a year industry and is used by hundreds of thousands of businesses and individuals as a mechanism to increase their revenues, preserve cash flows and market themselves to new buyers. The modern barter and trade industry operates to improve the overall economy by injecting additional commerce into the system and thereby improving the financial strength of all of its participants. The advent of the internet, and sophisticated relational database software programs has further advanced the barter industry's growth financial credibility. The U.S. government officially recognized barter exchanges as third party record keepers in 1982 with the passage of the Tax Equity & Fiscal Responsibility Act which also required all barter exchanges to classify their members' barter sales as reportable income to the IRS via an annual 1099-B filing. Organized barter has grown throughout the world to the point now where virtually every country has a formalized barter and trade network of some kind.

History of barter

In the past, goods were exchanged on a one-on-one basis with the intent that the value of the goods traded was of relatively equal value. Prior to the establishment of currencies, barter was the most accepted form of commerce. The equality of the value in a one-on-one barter is often an issue. In 1626 Peter Minuet traded $24 worth of beads, knives and kettles for Manhattan Island - clearly Peter got the benefit of the bargain on that transaction. Barter is still practiced informally on a one-on-one basis everyday on a global basis. Organized barter networks have developed to permit third party bartering which in effect eliminates the concern over unequal one-on-one trading. The barter exchange operates as a broker and bank and each participating member has an account which is debited when purchases are made, and credited when sales are made in trade or barter dollars.

Trade Exchanges

A trade or barter exchange is a commercial organization that provides a trading platform and bookkeeping system for its members or clients. The member companies buy and sell products and services to each other using an internal currency known as barter or trade dollars. Modern Barter and Trade has evolved considerably to become an effective method of increasing sales, conserving cash, moving inventory, and making use of excess production capacity for businesses around the world. Businesses in a barter earn trade credits (instead of cash) that are deposited into their account. They then have the ability to purchase goods and services from other members utilizing their trade credits - they are not obligated to purchase from who they sold to, and vice versa. The exchange plays an important role because they provide the record-keeping, brokering expertise and monthly statements to each member. Commercial exchanges make money by charging a commission on each transaction either all on the buy side, all on the sell side, or a combination of both. Transaction fees typically run between 8 and 15%. It is estimated that over 500,000 businesses in the U.S. are involved in a barter exchange activities. There are approximately 500 commercial and corporate barter companies serving all parts of the world. There are two industry groups, the National Association of Trade Exchanges (NATE) and the International Reciprocal Trade Association (IRTA). Both offer training and promote high ethical standards among their members. Moreover, each has created it own currency through which its member barter companies can trade. NATE's currency is the known as the BANC and IRTA's currency is called Universal Currency (UC). Exchange systems provide new sales and higher volumes of business, conserving cash for essential expenditures, exchange of unproductive assets for valuable products or services, reduction of unit costs, and opening new outlets for excess inventory and unused capacity. Reciprocal trade finance enables a firm to buy using its incremental cost of production. So long as incremental revenue exceeds incremental cost, it is worth it for a firm to trade using a barter exchange.

There are multiple reasons to use a good barter exchange:

• Increased purchasing power
• Increased revenue
• Preserving Cash
• More clients (both from the barter exchange and from cash-business referrals from barter clients)
• Better cash flow
• Greater marketing opportunities
• Improved efficiency

Unless a business has more work than it can handle, barter is a ‘no-brainer’ for any company. A business has all its fixed costs (rent, salaries, insurance, vehicles, workers' comp, machinery, etc.) whether it has two hundred customers or five hundred, if a business can take down time or inventory that is costing money and turn it into new revenue, it’s a slam dunk. The major benefit to companies is that they get to leverage their cost of goods.

Organized barter companies also have many more benefits over conventional advertising methods since they are much more proactive. Barter members call into the exchange brokerage with things they need and the brokers match those needs with other members that can fill them. There are usually fees to join, but compared to a print advertisement for example, you only pay to join once and then most exchanges are ‘pay per use’.

The first exchange system is the Swiss WIR Bank. It was founded in 1934 as a result of currency shortages after the stock market crash of 1929. "WIR" is both an abbreviation of Wirtschaftsring and the word for "we" in German, reminding participants that the economic circle is also a community. Only SME can join WIR. Its purpose is to encourage participating members to put their buying power at each other's disposal and keep it circulating within their ranks, thereby providing members with additional sales volume. WIR has grown to 62,000 members, trading approximately the value of 3 billion Swiss Franc. The offering of goods and services for WIR is promoted by the fact that every official participant is obligated to accept payment in WIR for at least 30% of the first 2000 francs of the selling price, and every loan holder must amortize his/her debt by selling goods/services for WIR.

Corporate Barter

Corporate Barter is another sector of the barter and trade industry. It focuses on larger transactions, which is different from a traditional, retail oriented barter exchange. Corporate barter exchanges typically use media and advertising as leverage for their larger transactions. It entails the use of a currency unit called a "trade-credit". The trade-credit must be known and guaranteed (contract to eliminate ambiguity and risk).

Swapping

While swapping is an excellent way to find and obtain items that are inexpensive, it relies upon honesty. A dishonest participant might arrange a swap, and then never complete their end of the transaction, thus getting something for nothing. This practice is called swaplifting, a pun on shoplifting. The victim's recourse is often limited to shunning the swaplifter, or taking him to small claims court.

Complex business models based on the concept of barter is today possible since the advent of Web 2.0 technologies.

In the other word Barter means: The act of trading goods and services between two or more parties without the use of money. Bartering benefits companies and countries that see a mutual benefit in exchanging goods and services rather than cash, and it also enables those who are lacking "hard currency" to obtain goods and services.

Tax implications