About Commercial Trade

Commercial trade is the practice of one business selling something to another business and being paid for it with trade credit, then using that credit to buy something else from another business.

We all remember "contra" as the act of someone giving something to someone in exchange for something else. For example; Johnny cut Mary's lawn and Mary cut Johnny's hair, and they both saved their money. This simple trade was successful because;
a) Johnny and Mary knew of each other, and
b) they both needed something cut, and
c) the cuts were of equal value.

Commercial trade takes the act of contra and makes it multi-dimensional. In commercial trade;
a) the parties do not have to know of each other, and
b) there does not have to be a coincidence of needs, and
c) what is traded does not have to be of equal value.

Trading through a commercial trade exchange alleviates the one-to-one swap of two parties trading only with each other. For example; If Johnny normally charges $60.00 to cut someone's lawn, and conversely, Mary normally charges $20.00 to cut someone's hair, Mary would have to cut Johnny's hair three times to make up for the proper value of his lawn cutting. And, if Johnny usually gets his hair cut once a month, it will take three months to make the trade fair and equitable - and Mary's lawn will surely need cutting again before the swap is completed. Alternatively, Mary could pay Johnny 60.00 in trade credit and Johnny could pay Mary 20.00 in trade credit and both would be satisfied (and Johnny could have his hair cut by someone else if he prefers).

When a member of a commercial trade exchange buys a product or service from another member, the buyer pays the seller in "trade credit" instead of cash. The buyer simply writes a "trade draft" (similar to a bank cheque) and the seller deposits it into his "trade account" (like a bank account).

    Some other interesting points:
●  All fees paid to a commercial trade exchange are tax deductable as a business expense.
●  Commercial trade will enhance your business - not change the way you conduct business.
●  Businesses accepting trade credit in payment are paid upon sale - not 30, 60 or 90 days later.
●  Overdue receivables can occasionally be settled in trade credit as opposed to total write-offs.
●  Conventional banks recognize trade credits in a member's trade account as "liquid assets".
●  Members can also buy and sell personal things and big-ticket items like cars, boats and houses.

Occasionally, business owners considering membership in Island TradeLink ask, "is this LEGAL?"
The answer is YES, it is legal. And sometimes they ask, "will this drive my accountant CRAZY?" 
The answer is NO, it won't drive your accountant crazy - a good accountant will find it brilliant.

The practice of commercial trade is managed by organizations called Commercial Trade Exchanges. Members of commercial trade exchanges range in size from small, one-person businesses up to large, multi-national corporations. For example, one of Canada's largest, privately-held companies, The Jim Pattison Group Ltd., has maintained membership in a trade exchange for over fifteen years.

Conducting some of your business in trade is smart. Learn about trade exchanges.