In the Beginning….
Back in pre-money times, businesses operated in a barter economy, where goods and services were exchanged freely, and money was not a medium of exchange. Those days have passed, but many business people still barter.
A modern way of bartering involves, of course, the internet and organizations that manage and control bartering between businesses and individuals. These systems are called barter exchanges.
Trade and Barter exchanges allow businesses to buy goods and services from other businesses using their goods and services. “Trade dollars”, which are equivalent to the American dollar, keep track of the trades.
How Do Businesses Barter?
Barter is simply an exchange of goods and services between individuals, including businesses. The important thing to remember about bartering with other businesses is that the IRS considers barter taxable. So you must keep a record of your barter transactions, including any expenses you have related to these transactions and the income you have from these transactions.
Keeping track of barter transactions gets complicated if you are bartering with several individuals or businesses. This is where a trade and barter exchanges comes in.
A trade and barter exchange is an organization that serves as a third party to coordinate barter transactions between members of the organization and as a bank to keep track of the value of barter transactions and the value of each member’s account. Exchanges provide a monthly accounting for each member and year-end tax reporting of barter transactions.
Trade and barter exchanges are usually local or regional, and may have websites which list products or services for sale. If you buy products or services from exchange members, your Trade Account is debited; if you sell products or services to other members, your account is credited.
Trade and barter exchanges allow you to trade with more businesses. Many of these barters are not one-to-one. For example, an auto repair business may barter with a radio station that barters with a printer that barters with a delivery service.
Trade and Barter exchanges charge an initial membership fee, a transaction percentage, and a monthly maintenance fee. Some barter exchanges also charge a monthly fee to “stock” the account, to encourage buying and selling.
One big advantage to a trade and barter exchange is your ability to barter with several other businesses or individuals in a kind of round-robin system and you don’t have to worry about keeping track of who owes what to whom.