Pros and Cons of a Barter Exchange

In an earlier post we provided a broad overview of the concept of bartering for small business and considerations a small business can keep in mind as they move towards a barter agreement.  Once your company has decided on what to barter, it will have a choice of how to find a barter partner.

A common way is through word of mouth.  If your business is involved in any lead-generating organizations or affiliated with the local Chamber of Commerce, you may have opportunity to meet a number of other sole proprietors in different sectors.  Setting up barter agreements with them can prove to be effective since you know they are local and involved in some of the same organizations, which lends a little credibility and reliability to any potential agreement.

If in-person searches have come up dry, you can also look into the option of a barter exchange.

According to the IRS, a barter exchange is a person or organization with members or clients that contract with each other (or with the barter exchange) to jointly trade or barter property or services.   A barter exchange allows companies to have more access to goods and services through an organized format.

Pros of joining a barter exchange:

• A barter exchange may involve hundreds, or even thousands, of companies offering a variety of goods and services. 
• Well-run exchanges will facilitate transactions with credits, in-house currency, enabling companies a form of exchange to "sell" and "buy" items and rewarding companies for successful transactions.
• You can also find services to barter.  Think book keeping, web services, professional counseling, handyman services.
• There is enough choice, over 500 barter exchanges are said to be operating in North America.

Cons of joining a barter exchange:

• Considering that it is relatively easy to launch a barter exchange, there are a lot of options.  You will have to do some sleuthing to filter out the duds from the gems.
• Joining a new or ill-managed exchange can create liability for your company, and can have a negative impact on your company's profit margins or budget.
• There are membership and transaction fees for joining many established barter exchanges.  If your company is in a delicate financial situation, you will have to weigh those costs against potential gains.   
• Be wary of price gouging, bait and switch tactics, and other unsavory business practices occurring in a barter exchange.  See if you can find frank reviews about a particular barter exchange and if it enforces strict policies to regulate professional conduct.

If you are sold on the idea of bartering and are ready to join an organization to meet your bartering needs.  Keep in mind these tips and suggestions:

Things to consider when joining a barter exchange:

• Look for a strong and reputable web presence
• Try to read online reviews or compare notes with other small businesses who may have used the exchange
• Compare at least three different barter exchanges before choosing one
• Check potential barter exchanges on the Better Business Bureau Web site, pull a Dun & Bradstreet credit report and talk with current members. Check to see if the exchange belongs to the National Association of Trade Exchanges or the International Reciprocal Trade Association, two prominent industry associations.

Related Resources:

• Selecting a Barter Exchange (InternetWorldStats)
• To Barter, Or Not To Barter... (FastCompany)
• Web Barterers' Tricks of the Trade (Wall Street Journal)
• Use Barter Exchange Services in a Tight Economy (AC)
• Bartering for Small Biz: Deciding What to Barter (FindLaw's Free Enterprise)
• Taxes 101: Bartering and Uncle Sam (FindLaw's Free Enterprise)