“Let’s Make a Deal: Bartering For Products and Services”

Say "barter" and you might think of swapping massages for knitted sweaters. Yet organized barter is a $9 billion-a-year trade strategy that is used by thousands of companies around the world.

Besides the almost endless choice of products and services, there are strategic advantages to bartering. Douglas Dagenais, vice president of Barter Corp., cites three major benefits:

• Increased market share. Bartering connects you with customers you might not normally serve in a cash economy.
• Conserved cash. By trading for a product or service that’s needed, the company does not use up cash.
• Another form of credit. A company can apply for a line of credit from their barter exchange, allowing it to trade its products or services over time.

How Barter Works

Founded in 1981, Barter Corp. today has a client list of about 3,000 businesses. Like other barter exchanges, it links companies that need the products and services provided by other firms.

"Somebody may call us and say they need heating/air conditioning units for their buildings," says Dagenais. "If we don’t have a company that can provide that, we’ll call around and find one. We then put the two in contact with each other, and they negotiate on their own," he adds.

Payment is handled through "trade credits," with each trade credit equivalent to $1. The exchange charges a 6.5% cash commission on what each company sells and buys. There is also a monthly maintenance fee — $15 in cash plus $15 in barter credits, which Barter Corp. applies to the purchase of products and services that it needs.

"Probably 10% of my income is in trade credits," notes Dagenais. He has bartered for dental work, vacations, even children’s schooling.

Investigating Exchanges

Before signing up with any barter exchange, do your homework:

• Find out if the exchange is registered with the International Reciprocal Trade Association.
• Make sure the exchange can obtain the products and services you need. Also, find out if the exchange has a demand for the product that you offer. Tip: One of the advantages of a larger exchange is that there is usually a greater diversity of products and services.
• Ask for referrals, and make those calls. Ask references how quickly the exchange responds when a business calls for a product.
• Start small. Barter a little at a time until you’re sure you like it.

Tax Issues

In the eyes of the IRS, handle barter arrangements as if they were cash. In other words, if you barter for a business expense, you can put it down as an expense. Barter Corp. issues Form 1099B at the end of the year.

Tip: It’s important to keep accurate records of all barter exchanges. This is easier when the barter exchange issues monthly statements and a year-end tax form.

Writer: Chris Petrakos