By Geeta Ghosh
With our economy the way and obtaining the things and services we need getting more and more expensive, and our paychecks getting smaller and smaller, many folks are left wondering what to do. Before traditional currency we see today, civilizations from the dawn of time have turned to what is known as bartering or a system of exchange. Wikipedia defines bartering as “a medium in which goods or services are directly exchanged for other goods and/or services, without the use of money.”
During the Great Depression in the 1930s, money was scarce. People established barter groups like The Unemployed Citizens League of Denver (with 34,000 members) and the National Development Association. The early 1980s, during a long recession, bartering regained popularity; it was featured in many magazine articles and many new books. Hundreds of barter clubs were created throughout the nation. More companies learned about the advertising industry’s “trade-outs,” and international commerce’s “countertrade,” and other possibilities for bartering in business.
Bartering is an ancient system that’s taken on new importance among today’s cash-strapped consumers. With the new technology available to businesses now, computers can track barter transactions and inventory and this has helped to expand the growth of this form of trading. In fact, now there is such a term as the “barter economy”, as quite distinct from the “cash economy”. We have now grown to what is known as “barter exchanges”. These are groups that create markets for traders to function and come together to barter. Barter exchanges have also assisted in fuelling the huge growth of this industry. Today barter exchanges is a billion dollar industry many times over and has become a very successful method in assisting in the growth of companies and facilitating trade without the use of cash. People feel strapped for cash and because the credit environment is still quite difficult for many people, any execution that allows them to get something they want without paying cash is something they are much more willing to explore.
There are two main types of bartering: direct and indirect. In the former, people engage in direct trades of goods and services without using money. In the latter, small-business owners and individuals accumulate credits, or barter dollars, by providing specific services ranging from painting a porch to putting on a dance performance. Those barter dollars can be used to buy the services of any other network member. That way, a barber with a toothache can barter for dental work, without having to find a dentist who wants a haircut.
There is no doubt that barter is big business and it’s getting bigger year by year. Some large companies have been engaged in barter for many years. It is something any business should consider because it has many benefits and can produce increased sales and conserve cash in some situations. During the recession more people have been attracted to the concept of bartering for their health care needs. And now health care is surpassing auto repair and advertising as the service in most demand, say people who run local barter exchanges. Barter is little more than a stopgap solution for the uninsured. But with doctors, dentists, psychiatrists, chiropractors and even cosmetic surgeons offering their services, bartering is providing a temporary safety net of sorts for some workers who have lost their jobs and health coverage. In some cases, people who have inadequate insurance are using barter to get critical services, such as dental and vision benefits.
Many of these exchanges are designed for small business owners seeking to conserve cash. Many doctors will participate only in indirect barter exchanges, which typically charge members 6 percent fees on all purchases and sales. The American Medical Association has no specific policy on bartering, but supports doctors’ freedom to choose how they want to be paid. The government only bars doctors from bartering for more than the cash value of their services from Medicare, the federal program for the elderly, and Medicaid, the state-federal program for the poor and disabled.
Direct bartering is conducted mostly on Web sites. Direct barter appears to be most common in rural areas and in the South. Strengthening communities is the focus of another kind of exchange system, called time banking, and developed in 1980 by Edgar Cahn, a law professor at the University of the District of Columbia law school. In these groups, people trade their time rather than the cash-equivalent of goods or services. Dozens of time banks operate across the country, with many offering extensive health-related services, ranging from exercise classes to medical appointments to help getting to the doctor. A few hospitals, meanwhile, have devised exchange programs of their own. At Woodhull Hospital in Brooklyn, N.Y., artists without health insurance earn credits toward free care if they perform or work with patients and staff.
Bartering for pet care during the recession is also an option. An enterprising group of volunteers in Wakefield has set up a spay-neuter project with a twist. Eaton and five volunteers ask the pet owners to donate an object or service worth about $100 or more that will be auctioned to pay the vet costs for the surgery, which is $150 for a female cat and $100 for a male. They can also buy any such items to offset the cost of their animal’s surgery. To date, they’ve received snowboard boots, sessions with a registered massage therapist, offers for acupuncture, yoga lessons, a sofa and ottoman, and there’s even a plumber coming on board.
“There’s no limit to the services that you can offer,” says Eaton. “If someone offers labor such as gardening or snow shoveling, then we suggest that they offer eight hours for a male cat and 12 hours for a female cat. But, of course, the person who buys the service can choose how much time they’d like the person to donate.” Since February when the project started, the group has facilitated 16 surgeries, for 14 cats and two dogs. However, they’d prefer to stick to cats until they have a website up and running for the barter items, “so that we offset the costs,” says Eaton. Each week, area veterinarian Frances Dugan will perform one surgery at a clinic in Aylmer. If the owner — who must be a Wakefield or Chelsea resident — cannot bring their pet in or pick it up, a volunteer will do so.
Another man has created a bartering service for pet care; walking, feeding, and so on. When someone gives you a service, you don’t have to pay them back directly; you can offer your service to someone else in the network. And the dog sitter is supposed to check in every day and write about how things went. Check out http://www.petciety.com/ for bartering opportunities outside of San Diego County with pet care services, including professional companies. Ingenuity and smart shopping can help you save money and still give your pets good care. With the economy on the skids, the ancient practice of bartering is back in vogue. If you have a particular skill, consider offering it in trade for pet services. Buying in bulk is another budget saver. Look for dog treats and chews from online dog supply catalogs and store them in the freezer until you need them. Some cities offer free or low-cost rabies vaccinations. You can take your pet to a vaccination clinic at a pet supply superstore instead of the vet’s office. And customers should feel free to simply ask a prospective service provider if they can do a trade or barter, they might be surprised at who is willing to trade their service for whatever they have to offer.
But regardless of what other ways you cut back, don’t skimp on preventive care such as heartworm medication. Those problems can be much more expensive to treat than to prevent. Look to cut corners elsewhere, such as fewer or homemade dog toys or purchasing old comforters at garage sales for comfy dog beds. Look for coupons. If a catalog has a low price for heartworm or flea and tick preventives, see if your vet will match it. Most do. Alternatively, try to get into group orders with a discounted bulk price.” Most pet owners say they would decrease spending for themselves before they’d let their pets go without.
When bartering, take the necessary precautions to protect yourself. The main reason businesses use barter is to conserve cash resources. As cash is the lifeblood of a business, any strategies to conserve this are welcomed with open arms. However, barter is more than saving cash; it is a method of marketing your goods and services and carrying on normally where products and services are exchanged, except cash dollars are replaced by barter dollars. Barter dollars, or trade dollars, are identical to real dollars for tax reporting, the IRS said. If you barter products or services through a barter exchange, which functions primarily as a marketplace for members, you should receive a Form 1099-B, “Proceeds From Broker and Barter Exchange Transactions.” Your proceeds, the amount shown in Box 3 of the form, are generally reportable as income and must be included on your federal income tax return. Barter exchanges are generally required to issue Form 1099-B annually to their clients or members and to the Internal Revenue Service. This applies whether the bartering operates out of a physical office or on the Internet. For example, if you’re a plumber and you do repair work for a dentist in exchange for dental services, both parties must report as income the fair market value of the goods and services exchanged.
While few might stop to think about the legal ramifications of bartering, it should be noted that even though it seems informal, bartering is a transaction just like any other. For those trading goods or services of a marked value, a contract ought be used to protect both parties. According to SMU Law professor, Mary Spector, every aspect of the exchange should be outlined, for example, with regards to pet care being exchanged: “Would [four hours of pet care] mean grooming the pet? Walking the pet? How many pets would be involved? Is it just dogs or would it be dogs and fish? Similar to the legal ramifications, there are also tax implications of barter-based commerce. According to the IRS, “If you conduct any direct barter – barter for another’s products or services – you will have to report the fair market value of the products or services you received on your tax return.” Anyone who barters more than $600 in goods and services a year must pay taxes on the transactions.
Today, there are a number of barter systems in place alongside replacement currencies that operate on a local level in cities or small rural villages such as Cyber Bartering, Regional Bartering Exchanges, Big Business Bartering, Local Bartering Exchanges, Script Currencies and Replacement Currencies. Cyber Bartering, such as Barterbee, Barterquest and Rehashclothes, offer individuals various avenues for bartering, specific to what good or service they are looking for. Regional Bartering Exchanges are networks of businesses that trade the value of services for that of other services. Big Businesses Bartering is much like Regional Bartering Exchanges except many of the world’s largest companies are involved in bartering at some level and are presently using barter to reduce surplus inventory, boost sales and ensure that production facilities run at near capacity. Local Bartering Circles where wares and services are exchanged at local marketplaces and other such gatherings specifically designed for barters. Script Currencies is another recent development is the re-emergence of local currencies where there is a ten percent discount worked into the exchange rate, and the currency is widely accepted by many area merchants. Replacement Currencies tend to develop when a national currency loses the trust of local economies.
The recession has increased interest in bartering as a bootstrapping strategy for entrepreneurial businesses of all sizes. Out of the increased demand for bartering opportunities comes growth in businesses that offer a more formalized barter network. Typically, a small business sets up an account at a barter company, similar to a checking account at a bank, for a one-time fee. “Trade dollars” earned for services rendered are deposited into the account and can be spent on any product or service in the network. Companies regularly find others willing to barter via the barter site’s online directory of services, email newsletters, referrals or by contacting a firm’s account manager. On top of the setup fee, both parties pay the barter company a transaction fee of about 5% to 6% on each deal.
Barter definitely attracts customers and therefore sales the business would normally not have obtained otherwise. This is because a barter oriented business would rather use the barter facility than to outlay cash. This is acceptable, therefore, to all businesses that enjoy the barter system. Barter generates sales that would not have happened if cash had been required to complete a purchase by the buying company. It’s good also because it provides another advantage to a business. Where cash is short, the option of barter can ensure that a sale is not lost and, in fact, can grow sales figures substantially. It enables expansion because it frees up the company’s cash reserves for other needs, as well as reducing holdings of excess stocks. The fact that a business can achieve growth without the need for real cash, makes barter an attractive proposition that needs to be seriously investigated.
For the regular person bartering can also be a benefit but requires a bit more “out of the box” planning than operating within networks in the way businesses would. People need to think creatively in order to keep abreast of economic problems in this recession. So while it may be difficult to sell items in a house sale or resale shop someplace, some folks have found places like Craigslist helps. Bartering on Craigslist has increased in the past year by 100% according to recent reports. Craigslist represents what is called the “underground economy” since what happens there isn’t recorded on the gross domestic product. Bartering booms during hard economic times, so outlets like Craigslist allows enterprising entrepreneurs and those presently unemployed to get what they need or want in exchange for the goods and services they can’t otherwise sell. This becomes a win for everyone and a way to stay ahead during the present recession. Five important things to remember:
1. Pick the right place to barter. Not all bartering sites are alike. Some specialize in particular goods and services; it all depends on what you want and what you have to offer. If you’re hoping to unload books or CDs that have been gathering dust in your closet–and gain some new ones–consider sites like Swaptree[http://www.swaptree.com], TitleTrader, and Switchplanet.com For the environmentally conscious, there’s Freecycle and ReUseIt Network. Other sites are bartertrainer.com, otradenetwork.com, tradeaway.com. The Top 10 Batering sites are: Swap Tree, Barter Thing, WebSwap, MrSwap.com, Switchouse.com, SwapVillage.com, Favorpals, Swap Treasures, Swap ‘n Haggle, U-Barter Exchange.
2. Be specific. The biggest mistake people make when bartering online is that they don’t provide enough detail in their postings. Market yourself. Be descriptive about the goods or services you’re offering, and make sure people can find you in a search. For example, if you just write “handyman,” only people who search for that word will find you. If you’re seeking goods or services, be specific about what you’re looking for.
3. Be wary of scams. One blogger recently completed a trade, but never received the item, and was unable to get in contact with that user. And some people haven’t had any problem whatsoever. Always check sites for feedback from other users, and ask for references.
4. Don’t forget about the IRS. If you trade bikes with someone on Craigslist, there’s nothing to report to Uncle Sam. But other exchanges are considered taxable by the IRS. An example of a taxable barter, according to its website, is “a plumber doing repair work for a dentist in exchange for dental services.” Both the plumber and the dentist would need to report those services as income. Moore recommends agreeing with your trading partner beforehand on a cash value for services traded.
5. Know the limitations. While online bartering might save you cash, it could cost you plenty of time. “It’s the incidence of coincidence,” says Krista Vardabash, director of marketing at International Monetary Systems, one of the two public companies that facilitate business-to-business bartering. First, you must find someone who wants what you’re offering. Second, that person has to be interested in exactly what you have. Online bartering sites make that more likely, due to the sheer number of people trading. But the process can still require a long wait.
So, let’s dive right in and get bartering!