Optimizing Business Cash through B2B Barter¹

Optimizing Business Cash through B2B Barter

One of the oldest forms of exchange still works for businesses looking to optimize their cash flow while providing and receiving value for their products and services. Here's how bartering can legitimately help you grow your business:

For many small enterprises, cash is the lifeblood that keeps the heart of the business pumping. For business owners looking to optimize their use of cash, bartering with other businesses can be a winning solution. Barter creates win-win situations by allowing products or services to be exchanged for equivalent products or services from another business, all with minimal or no cash consequences.

There are a variety of credible ways to establish barter relationships with other businesses. Tapping into the local business community is a method that allows for a high degree of certainty, as the personal nature of doing business nearby facilitates trust and reputation-building. There are also online tools available to extend the reach of businesses looking to barter their services across geographic regions.

Whether you are considering bartering in your local or digital community keep in mind the following best practices:

  1. Fairness is rule #1. It may be tempting to heavily “discount” barter or otherwise reduce the value in work done without cash payment, but the reality is cash is just one of many ways of paying for products and services. Don’t allow the method of payment to determine the value you put on your time and effort. When both businesses in a bartering arrangement are giving and getting fair value everyone comes away the better for it.
  1. Keep it formal.  Just because money isn’t changing hands doesn’t mean the expectations should be any different. Follow your normal practices around contracting and follow-up. If anything, apply extra diligence to the process of establishing a relationship to make sure of a good outcome, since cash payment isn’t going to be available as a point of leverage.
  1. Maintain your requirements. It isn’t worth saving a little cash if it puts your business in a bad spot. Setting the bar lower for a business providing you with goods or services via barter isn’t likely to end up with either party feeling good about doing business with the other.

    It’s also important to reciprocate this level of expectation: protect your good name by making sure you deliver according to your usual standards so that there is no reason for complaint. It’s tempting to allow unpaid work to slip to the bottom of the pile, but remember that timely barter can help you collect great references.

  1. When things go wrong, don’t panic. If you followed the above steps and have a written agreement chances are you have a well-documented next step that determines how to handle failure to deliver by a vendor. If you are considering a barter and your standard documentation doesn’t have such provisions consider adding a clause that allows for a clean end to the business arrangement.

Look Online For Additional Barter Opportunities

Sometimes businesses need to cast a wide net to find the right opportunities for barter and trade. Today numerous websites exist that facilitate barter between businesses, and these sites tend to follow the same basic principles.

After registering on the barter site one simply needs to post the desired or offered barter services or goods. Other interested businesses can reply to these posts expressing their interest, and agreement is reached between the parties. The website acting as the middle-man usually charges a fee for this service or operates on a subscription model, and as always in business it’s important to do your due diligence on both the potential barter partner and the website facilitating the transaction.

More information is available through the National Association of Trade Exchanges (www.natebarter.com) and the International Reciprocal Trade Association (www.irta.com).

Don’t Forget the Tax Man

Businesses engaging in barter may still have tax obligations arising from the trade of their products or services. Generally speaking, “income” can include the receipt of barter, and the provision of business through barter to other businesses can count as an expense.

While this may result in a wash between the added income and expense it’s still important to be mindful of the possible tax consequences of barter. Should “income” received be less than the services provided it’s possible for actual income, relative to expenses, to be reduced along with any associated taxes due.

There Are Many Good Reasons to Barter

Businesses engaged in barter enjoy a variety of benefits that make barter worth considering. Some of these benefits are readily apparent; like a reduced strain on cash reserves, while other reasons are less obvious. The ability to manage seasonality by providing and receiving value for your work during otherwise slow times of the year is one such extra benefit to barter. Additionally, each instance of barter is another chance to build your business reputation and earn more paid business.

Delivering outstanding work via barter and following some of these simple best practices is a great way for businesses to capitalize on the opportunity of business-for-trade without running into some of the pitfalls of cashless transactions.