Southern Barter Exchange brings new life to old system.

IF YOU WHO THINK BARTERING went out when money came into use, think again.

It's estimated that nearly half a million U.S. companies participate in barter for a total of more than $16 billion in annual sales.

That makes bartering--trading goods and services without the use of cash--a major force in the economic system of the United States.

Southern Barter Exchange of Little Rock is the major bartering agency in the state. It has some 600 clients in 19 states, but most are in central Arkansas.

Kenn Flemmons, owner of the barter exchange, said he works primarily with independent businesses or franchisees.

Southern Barter Exchange keeps a low profile. Flemmons said he's not interested in trying to promote the exchange to the masses. It's a business-to-business exchange that Flemmons readily admits is not for everyone.

"Those businesses that operate with skimpy margins--a markup of less than 30 percent--will find it difficult to make trading worthwhile," said Flemmons. Businesses that don't particularly need new clients also aren't good candidates for a barter exchange.

Those companies most likely to benefit, Flemmons said, are growing, seeking new clients, have decent markups and want to improve cash flow, he said. Also businesses that have excess inventory or are having difficulty collecting accounts receivable might benefit from bartering.

Although Southern Barter operates in one of the smallest markets, it ranks in the top 25 percent of barter exchanges in the country in terms, of volume, Flemmons said.

According to the International Reciprocal Trade Association, more than 65 percent of the corporations listed in the New York Stock Exchange are currently using barter to reduce surplus inventory and bolster sales and to ensure that production facilities run at near capacity. The U.S. Department of Commerce estimates that 20-25 percent of world trade is barter.

"Most people aren't educated about bartering and don't really know what we do," Flemmons said. "We help businesses barter or trade what they have for what they want. We get buyers and sellers together".

An account with Southern Barter works the same as having an account with a bank, Flemmons said, except clients are spending trade dollars to buy and sell rather than cash. Prices quoted to barter clients are the same as prices quoted to cash-paying customers. Barter is simply a method of payment--just like a credit card or cash.

As a third-party record keeper, Southern Barter sends its clients a statement each month of what's bought and sold and a current trade dollar balance. At the end of the year, clients get an IRS 1099-B form. Yes, barter income is regulated by the Internal Revenue Service and is treated the same as cash income. There are no tax advantages--or disadvantages--to bartering. The IRS values one trade dollar equal to $1. Sales are reported as income, and all local and federal taxes that apply to cash sales .apply also to trade sales. The same is true for trade purchases.

Although bartering is not a tax tool, cash purchases that are normally tax deductible as business expenses are also tax deductible when bought in the barter network.

How It Works

Let's say you have an office furniture business and you need to get $1,000 worth of brochures printed. You could pay $1,000, or you could get together with the printer and try to work out a deal if you wanted to save your cash for some other need. But maybe the printer doesn't need new office furniture. What he needs is fresh paint for his shop.

The exchange eliminates the restrictions of one-on-one trading where each business has to want what the other has to offer Southern Barter makes trading easier by giving participants the ability to sell to one business and buy from another.

The office furniture business, which has an account at the barter exchange, transfers 1,000 trade dollars to the printer The printer uses those 1,000 trade dollars to pay for a paint job. Later, the paint company owner might later use its 1,000 trade dollars to go on vacation to a hotel that's in the exchange, and the hotel could use its trade dollars to get some office furniture. All those transactions--with no cash involved. That's the flexibility of a barter exchange.

The benefits are obvious. A business can get rid of inventory and maintain its cash for everyday business expenses. Plus, being part of a barter exchange can bring new sales. Southern Barter acts as a promotion and marketing department through a monthly publication and listings in the exchange directory.

Southern Barter belongs to the National Association of Trade Exchanges, which, in effect, makes an account with Southern a national currency and opens up a huge potential market for exchange members. Flemmons is an officer on the national association's board.

Alton Johnson, owner of Target Printing, said he has picked up printing business from New York and Michigan and is currently doing printing for a business in Nashville, Tenn., because of the barter exchange. "It's good for the little guy who's trying to grow.

What does he buy with his barter bucks? Usually paper, he said.

"It works great," Johnson said. "Suppose I had a printing order from an ad firm and I needed to buy $50,000 worth of paper I might not get paid for the print job for 90 days. Paying cash could put the business in a tight spot."

Businesses charge retail value for goods and services in trade dollars, instead of selling them for reduced rates in cash or having them go unsold.

If a business needed to buy a new copier for $1,000, it's easy to see the advantage of paying with an equal amount of its own product, for which it paid wholesale prices, or services rather than with cash.

The Exchange

Flemmons, whose background was in the radio and television business, bought Southern barter Exchange in 1996. It was founded by Ray Brown, a former KARK-TV newsman who started it in 1982. Flemmons gives Brown the credit for bringing credibility to the company.

"We're successful because of the reputation built up by Brown," Flemmons said. "We're jealous to protect it. We're in a business in which we must provide service or the customer will leave."

Eighty percent of new clients come to Southern Barter through referrals from current clients, Flemmons said.

Members of the exchange are charged a one-time registration fee to establish the account, and a transaction fee, or commission, is charged on each transaction, whether buying or selling, to pay for the accounting, marketing, promotions and member services.

After experiencing double-digit growth for years, Southern Barter has managed only single-digit growth for the past couple of years. Flemmons is optimistic that the exchange will once again return to double-digit growth this year.

"Trade is another tool that is attractive in tough times," he said. The increase in trade transactions is indicative of tight cash, he said.

"Trade is a tool that a lot of businesses are starting to use--and that bodes well for the future," Flemmons said.

In the next five years, he foresees Southern Barter Exchange doubling in size.

He currently has six employees, five in Little Rock and one in an office he opened in Memphis a couple of years ago. Southern Barter moved to its new office--actually a century-old home--at 1014 W Third St. in January.