International Monetary Systems

Six months after 9/11, Wichita's E.L. Bailer Indoor Advertising was facing bankruptcy. "We were probably 90 days away from being gone," co-owner Laura Oxley said. "It was pretty bad." And then she ran across Kansas Trade Exchange, a business-to-business bartering company that operated in Wichita at the time. She learned how bartering could conserve her cash flow and initiate new business.
Don Mardak, founder and CEO of Milwaukee-based IMS, said he is seeing 12 to 15 new members each month in Wichita.

"It's a secondary economy within the mainstream economy," Mardak said.

Exchanges make their money through a variety of ways. They typically charge a transaction fee of 10 to 15 percent. Most require a one-time membership fee, ranging from $250 to $600. Some have monthly maintenance fees of $5 to $20.

Making bartering make sense

Because of the fees, industry experts say bartering doesn't make financial sense for every business.

"If your profit margin is 10 percent or so and you're going to pay us 10 to 12 percent, how do you make any money?" Mardak said.

He said businesses that are already "filled to capacity" in terms of services or selling products also wouldn't benefit by bartering.

"They've got nothing to trade," Mardak said. "But that's not true for most businesses. There aren't many restaurants that don't have some empty tables every night, or a hotel that doesn't have some vacant rooms.

"How much are those vacant rooms worth the next morning?"

Exchange fees didn't discourage Kay Wiggins, owner of Wichita's Kay Wiggins Jewelry, Beads and Gifts, from joining Kansas Trade Exchange about eight years ago.

"I just consider it to be advertising," said Wiggins, who is now an IMS member, "because I just picked up 400 new customers."

And it grows from there.

"When they meet the new business people (through the exchange)," she said, "they tell their friends, who spend cash with you. That's the best part of it for me."

Wiggins barters with fashion jewelry, beads and even her store's homemade fudge. In return, she used her trade credits for hotel expenses on business trips to Dallas and to pay for janitorial services and printing.

"You can really reduce some of your cash-flow issues," she said.

There is a learning curve to bartering.

Jason Bell, who owns Specs Eyewear with two other partners, said the company almost canceled its account with IMS shortly after opening it in 2004.

"Cash was tight," Bell said, "and we had about $7,000 in our (trade) account. We weren't spending it."

But a closer examination of the books discovered ways the company could use its trade credits for things such as printing and office equipment.

Bartering has since helped drive Specs' expansion, Bell said. The store will soon open a store in Derby for its fifth location.

'A really good deal'

Bartering isn't just for small businesses.
Oxley was skeptical at first, then talked with some friends who were KTE members and decided to join the exchange. Gradually, cash-flow problems eased and she could see light ahead.

She said bartering has been a significant reason business has tripled since she and her husband, Ken, bought the company in 2000.

"It's worked beautifully," Laura Oxley said. "I don't know what we would do without it."

Simply put, third-party bartering involves an equal trade. Exchanges work like banks, except businesses make trade deposits instead of cash deposits.

A business selects its trade deposit from its service downtime or excess inventory. It then tries to turn that deposit into a valuable commodity by listing it for trade through a barter exchange.

The business receives a trade credit based on the dollar value of the good or service offered. It can then use those trade credits to "purchase" goods or services offered by other members.

Oxley said she has done $50,000 to $60,000 in trade business in each of the past two years while intentionally keeping it to 20 percent of total sales.

"It's really picked up since the fall," said Ron Whitney, who oversees the International Reciprocal Trade Association, a trade organization that represents 85 of the estimated 250 to 300 exchanges in the U.S.

International Monetary Systems, which bought Kansas Trade Exchange in 2007, and Tradebank International are two of the nation's largest exchanges and have offices in Wichita. Both companies say they have about 400 active clients in the Wichita area, although a number of businesses belong to both exchanges in order to expand their pool of trading partners.

But he said the costs that go into those gift cards total about $50,000, hence the profit for the same amount.

Sellers of trade credits still need cash, particularly those that have product expense. So a business bartering for car repairs may pay cash for the parts but use its credits for the labor.

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