The benefits of barter

This is a guest post from Andréa Coutu.

So you've got big ideas but no way to pay for them: a home renovation, weekend getaway, successful business, dream dinner date, leaner body, new bedroom suite…the list goes on and on.

Maybe your bank account has seen better days, or maybe you just don't want to tie up more money in pursuing a dream. Well, money is just one medium of exchange. By using barter, you can tap into a range of goods and services — all without spending a dime.

Barter in Real Life

When bartering services, you trade your time for someone else's specialized time. For example, a personal trainer I know exchanges training sessions for childcare, marketing, advertising, photography and other services that help her business thrive. Of course, to make the barter work, she has to find someone who can offer the services she needs — and that person needs to see value in what she has to offer.

A graphic designer friend often does work for high-end restaurants — the kinds of places that charge $40 or $50 just for an entrée. She puts together restaurant advertisements, newsletters, menus, postcards, direct mailers and other projects. In exchange, the restaurants pay her in gift certificates. The great thing about the gift certificates is that she can give them to friends, relatives, and corporate clients. By trading her services for an hour or two, she can treat her husband or her top client to a $200 dinner.

Through bartering, you can gain access to a wide variety of services. A marketing consultant I know has traded consulting services and been able to build a thriving empire. She's gained executive coaching, website development, photography, graphic design, advertising, writing and strategic business consulting. In fact, she even connected with my personal trainer friend to swap childcare and personal training sessions.

Banking on the Barter System

But what if you have time to trade, but no one willing to use it? You can join a formal barter exchange. That way, you can “deposit” your time into a “barter bank” and “withdraw” it for later use. Say you mow lawns for a daycare center, for example, but you have no need for childcare. The daycare can pay you “trade dollars”, which you could use at another business in the barter network.

So, in exchange for mowing the daycare's lawn, you could use those trade dollars to pay for a fancy dinner at a local restaurant, get your mower repaired by a technician or advertise your services in the Home & Garden section of the local newspaper. Most barter companies charge an initiation fee and monthly, annual or transaction-based fees, so make sure you're going to use services more valuable than those fees.

The Benefits of Bartering

You might wonder why you'd barter when you could just pay for the services. Well, unless you are running your business or personal life at full capacity, you probably have a little downtime now and then. If you've got a business, you have fixed costs to pay whether you're working round the clock or not at all. So, by trading otherwise unused time or products, you can generate revenue.

For example, if you would otherwise not have any lawn mowing clients on Monday mornings, you could provide barter services during that slot and earn credits, without needing to sit idle or discount your price. All you're giving up is some time, but you might earn credits worth $100 or $500 for that time, depending on your charges.

Some barter exchanges will also allow you to charge a minimum fee, to cover the costs of hard goods. So, for example, if you provide painting services, you might charge a $15 an hour fee plus a $25 an hour barter credit. That way, you can pay for paint and rollers, while still trading your time on barter.

Tax Implications

Depending on where you live, you may need to report barter as income. In the United States and Canada, you need to include bartering in your income taxes. If you receive $100 worth of bartering services to a friend or colleague, you need to declare that “income”, even if you swapped your time for it.

So, if you think barter might work for you, try approaching people with your ideas. Some businesses list barter services on their websites, whereas others are happy to talk off the record. Just ask around — it never hurts. And let your friends, colleagues and — if applicable — your customers or blog readers know that you have services to barter. You may find that opening yourself up to barter helps expand your professional network.

Andréa Coutu runs the Become a Consultant Blog, in addition to a thriving marketing consulting firm. She is the author of Discover Your Inner Consultant and Consulting Fees: A Guide for Independent Consultants. She happily considers barter services.

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Shanel Yang
Shanel Yang
12 years ago

What a great idea! I am interested to barter with a web/blog designer/consultant who wants to barter for my following professional services:

* legal advice
* English lessons
* how to succeed in law school
* how to ace your job interviews
* people skills at work (office politics)

Andrea and J.D., thanks for this great post!

ageekymom
ageekymom
12 years ago

I created a web site for an artist friend in exchange for a painting of hers. She has her website (up for over 2 years now) and I’m still waiting for my painting… now what?

J.D.
J.D.
12 years ago

Ageekymom has an interesting point: barter only works if both sides carry through. However, this is also true in monetary transactions, too. I’m not sure it’s an inherent flaw of barter. You can pay for work that never gets done. Or, more often, you can do work for which you are never paid. For example, when I was doing computer consulting, I had one client who would call me in a panic because they had a virus (or whatever), I’d rush over there, spend three hours fixing things, issue an invoice, and then never see payment. Obviously, this arrangement only… Read more »

J.D.
J.D.
12 years ago

Oh yeah — I meant to say that I recently did my first barter transaction. One of the contractors working on our house was interested in an old computer monitor I was no longer using. I was able to swap this monitor for a few hours of his time. Pretty cool!

Michael
Michael
12 years ago

Honestly…who would report barter income on their tax return? I’m normally a very “do it by the book” guy, but the government can’t possibly enforce this rule. There’s really no reason to do it.

Vyviane
Vyviane
12 years ago

Michael-

By a very “Do it by the book” guy do you mean you are a decent honest man unless you aren’t going to get caught?

That does not lead to someone being wealthy in all area of their life. It just leads to a slightly fatter wallet at the expense of others.

Shanel Yang
Shanel Yang
12 years ago

@ ageekymom and J.D. Barter contracts (whether oral or written) generally work the same as contracts for cash payment of products or services. But there is a statute of limitations which varies from state to state and, there are always exceptions to the general rules. For example, if you were in CA, and if your contract was oral, you have 2 years from the date of breach (broken contract). Or, if your contract was written (and still in CA), you have 4 years. So, it may NOT be too late — depending on your facts and the laws of your… Read more »

Andrea >> Become a Consultant
Andrea >> Become a Consultant
12 years ago

Barter is still a contract. So you can enforce the contract if the other party takes part. I heartily recommend using contracts, even for barter. I know a graphic designer who insists on it.

And, yes, you’re supposed to report barter on your income tax. I had to tell you that. You’re also supposed to report garage sales, eBay sales, gifts of more than $X, the money you receive for babysitting, etc. Consider that as you will. 🙂

Adam
Adam
12 years ago

I can see the pros and cons of bartering in general, but the “Barter Bank” is absolutely ridiculous.

Performing a service for someone in exchange for a universally accepted currency which is then kept at an intermediary to ensure safety and integrity.

How is that any different than paying someone cash for work, and them using that money later to pay for a service they want? This is just reinventing the wheel in a major way to seem smart and sell books/generate ad revenue.

todd
todd
12 years ago

I pretty much agree with Adam. While I can see how bartering might be useful in certain situations (and only with specific parties), in most situations, paying with currency is a whole lot easier and, come to think of it, you could even get the same ‘tax-benefits’ if you just paid ‘under-the-table’ for both transactions. Although that is obviously illegal and the same as bartering without reporting it on your taxes. Market economies were developed to make the exchange of goods easier than bartering (and lots of other stuff too I’m sure). For ageekymom’s transaction, and other transactions that are… Read more »

nbdean
nbdean
12 years ago

I’m with Adam on this one. I know of a great “Barter Bank” whose “Barter Dollars” are accepted all over the place. It’s called the “Federal Reserve” and I believe they call their “Barter Currency” “US Dollars”. Seriously, why would anyone pay a fee to use someone’s fake currency?

I’m not knocking bartering in general, mind you, but if you’re going to use a currency or a “bank”, just use your national currency. I don’t see how using a “barter bank” makes it any easier to sell or trade your downtime for dollars, fake or real.

Andrea >> Become a Consultant
Andrea >> Become a Consultant
12 years ago

Adam, barter exchanges/banks allow you to “pay” out barter credits without using cash on hand. So, even if you’re a profitable business but you have tight cash reserves — say huge contracts that won’t be paid out for months — you can use the barter credits. It’s a way to improve your cash flow situation — the main challenge for small businesses. You can also pay bonuses to staff via barter credits, take clients out for lunch, buy items for your own business. If you go into barter “debt”, you won’t be paying credit card or line of credit rates.… Read more »

nbdean
nbdean
12 years ago

Andrea, I appreciate your taking the time to respond, but I’m afraid your comments still don’t explain why someone would want to use a barter bank over regular currency. Of course barter banks allow you to pay out barter credits when you don’t have cash. On the other hand, if you worked for cash, you would have cash on hand. In fact, you would have exactly the amount of cash on hand that you would be able to spend in barter bucks, plus you wouldn’t have to pony up any fees to the barter bank. The main benefits you mention,… Read more »

Jen
Jen
12 years ago

I LOVE to hear stories of where people actually barter in this day and age. We had the inside of our house painted in exchange for a parrot, lol. I think we got the better deal out of that one.

Andrea >> Become a Consultant
Andrea >> Become a Consultant
12 years ago

Nbdean, If you can’t immediately find someone to pay you for your services, you can’t work for cash to have cash on hand. (Or sell goods to have cash on hand, as the case may be.) The barter banks allow you to pledge time/goods for later delivery, while taking advantage of the cash in the meantime. There are many ways to free cash flow. Barter is just one. But it is one that makes sense for a lot of people. You’re not earning interest on barter savings because you’re pledging something you haven’t actually delivered yet. If you have free… Read more »

nbdean
nbdean
12 years ago

Andrea, thanks again for your comments. I’m glad you’re willing to respond to us, and clarify some of your points. As someone previously completely unfamiliar with barter banks, I’m afraid I did not immediately understand the ‘line of credit’ point until your most recent comments here. It seems, then, that one of the major advantages of the barter bank is as a lending institution which does not charge interest. It instead charges periodic or transaction fees. While borrowing ‘dollars’ this way may or may not be a good idea, your most recent comments seem to go against one of your… Read more »

Mike Bahr
Mike Bahr
12 years ago

Waaaaaay to much bother to accomplish what currency already accomplishes.

Kevin
Kevin
12 years ago

I understand that in the interest of keeping up appearances, the author was obligated to include the disclaimer about taxes, but let’s be honest here – nobody’s going to claim bartered services on their taxes. That’s a large part of the attraction of bartering in the first place. It’s a simple way to cut out the tax man. Taxes represent a huge drag on your expenses, so if you can get the same services by bartering instead of paying cash, and thus eliminating the tax man, you’re already a good 30% ahead of the game. Honestly, that’s really the only… Read more »

Colin
Colin
12 years ago

My web development business has been a member of a formal barter network for a while. It was neat at first. We would only take on barter work when we had extra man hours to dedicate. But it’s become increasingly difficult to find uses to spend our “barter dollars” of which we’ve amassed over $10,000. And, of course, they don’t earn interest.

nbdean
nbdean
12 years ago

Kevin, I suspect you may be right about the big elephant in the room named taxes, although I believe there are a few situations where bartering makes sense even without the tax considerations. In my experience, bartering or trading makes the most sense among friends. There may be times when you and a friend could benefit from each other’s time or things. Including cash or formal prices in such transactions is an easy way to damage your friendship. For example, we have participated in babysitting exchanges in the past, and although we could have included cash in the transactions, it… Read more »

todd
todd
12 years ago

nbdean, I think you found the main usage of bartering… between friend/family/people you know and trust. We probably do it all the time without realizing it. It’s not exactly bartering but rather helping out your friends when they need it…and in turn your friends will help you when you need it (if they are real friends). Have you ever helped your friend move? Given him/her some old item you did not need? I know I have, and I don’t expect an immediate return. I just help the people close to me, and know that they will help me if/when I… Read more »

nbdean
nbdean
12 years ago

todd,

I think you’ve summed it up pretty well. Sometimes the help you give to friends is substantial or comes at significant inconvenience or sacrifice. If this is combined with a reciprocal offer of similar service, it is perhaps accurately labeled as a barter. Otherwise, it is mostly called simply being friends, or helping each other out, etc.

They are all different flavors of the same idea, and they work best, as you say, among people you know and trust.

Mary
Mary
12 years ago

I’ve always viewed the bartering good for using skills you may have that you are otherwise “not” being paid for. My husband and I do this a lot. Being both salaried employees, in which working extra hours does not equal extra money at our jobs and not wanting to tie up all our free time trying to run a business on the side, bartering has been a great way for us to afford to get services we may usually forgo, without having to get crazy over advertising, networking or tieing up free time we don’t want to. We have traded… Read more »

Bonnie
Bonnie
12 years ago

My brother is having his bathroom completely redone. If he had to pay for materials and labor at full cost, it would be at least 3K. Instead, thanks to the plumbing and other work he has done for friends in the past, his pals are returning the favor in a big way by donating materials and labor. He expects to pay no more than $500 total.

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