Leaving cash behind: Why 1 Hamilton company thinks the future is bartering
John Porter once felt like a man trying to sell the world's first fax machine.
He strode into Terence Webster Design in Ancaster over two decades ago with a singular idea: pitching a kind of formalized bartering economy, with a network of businesses that would trade goods and services instead of using cash.
There was just one problem. Like a fax machine needs somewhere to send that very first message, Porter needed someone for the design business to trade with — and he didn't have anyone else willing to sign up yet.
"I had to look Terry straight in the eye as a 19-year-old and say, 'You're not going to like this answer, but you're the first guy on the network. So you just have to trust me … that I can make this thing work."
Fast forward 22 years, and it seems he has. Porter is the president and CEO of BarterPay (formerly called TradeBank), a Hamilton-based business-to-business bartering system that has expanded throughout Canada, now with close to 4,000 businesses on board in 18 different cities.
"It's my life's work," Porter said.
The premise is simple — businesses are able to source goods and services without spending cash by bartering with their inventory and/or services. But it doesn't have to be a one-for-one trade between two companies.
Clients have accounts where they build up a kind of currency called "trade dollars" by exchanging their goods and services. They can then take those dollars and use them with another company, so two companies aren't bound to only do business with each other.
Basically, it's a way to get things done as a small business without cutting a cheque.
"Businesses are always struggling to maintain cash flow. The most appealing thing here is they can conserve cash," Porter said.
'The restaurant that barter built'
That definitely appealed to Harrison Hennick, the chef and owner at Nique. He was putting in a new $12,000 floor at the downtown Hamilton restaurant, and was able to pay for about 30 per cent of that through bartering in the system.
"I love making deals with people like that," he said. Now, he is building a new restaurant in the city, and is planning to use bartering to finance as much of it as possible.
His general contractor, he says, has agreed to have $20,000 of his fees be paid out through bartering in the system.
"We're intending for it to be the restaurant that barter built," Hennick said.
Chocolate Tales is another local business that has found success using the system. Founder David Levy told CBC News that his business sells about $30,000 a year in chocolate through BarterPay, which they turn around and convert into things like marketing, or even furniture.
"It's an alternative economy," he said. "It allows you to expand without doing all the heavy lifting. That's the charm."
Ties to the strength of the economy
BarterPay doesn't stand alone in this marketplace. There are other companies out there like Swapsity and Barter Network that provide s similar service.
McMaster University business professor Marvin Ryder told CBC News that companies like BarterPay "fill an interesting little niche in the market" though he is "a little skeptical" of BarterPay's "self-promotion."
"There's something here, but the dollar values are still relatively small in a gigantic market," Ryder said. BarterPay says that so far this year, it has brokered over $35 million in barter transactions between its members.
The success of a company like this one, Ryder said, rides on the strength of Canada's economy. When things are good, small businesses are more inclined to use cash. When times are tough, bartering seems like it could be more lucrative.
"The popularity of the niche changes over time depending on the state of the economy," Ryder said.
"The bigger surprise, in a way, is that BarterPay makes money on this," he added.
How do taxes work?
But they do. According to Porter, the company charges a $495 activation fee, which is "offset" by a $500 "trade dollar welcome bonus." Then there's a $15 monthly fee, on top of a $15 monthly fee in trade dollars, too. The company also makes commission on each transaction that it sets up for clients.
Ryder said he expected that once connections are made, companies would simply sidestep BarterPay and work out exchanges on their own — though Porter said its the company's brokers that facilitate deals, which would in turn keep their customers happy.
Ryder also called the bartering economy a "fairly grey kind of an area" when it comes to taxes. But Porter said the company is registered as a "designated barter network" in the eyes of the Canada Revenue Agency, so "trade dollars" can be taxed like actual cash.
Now, the company is looking at opening in more Canadian cities, eyeing international expansion, and expanding its "BarterPay It Forward Foundation," which the company says has donated more than $1.5 million to charities across Canada.
In the meantime, Porter says the company will keep pushing forward with a new spin on a very old idea.
"It's the oldest, newest way of doing business."