Barter

Barter, or bartering, is a way of exchanging goods or services avoiding the use of money in any form (like physical currency, credit cards or checks). This is the oldest system of purchasing, which had appeared long before the first currencies were introduced. As it is used for selling and purchasing, there are always two or more participants involved in barter. Barter was historically used as a method of exchange between individuals, but over the course of time and development of businesses and organizations, it also became available for entities to barter.

Main features of Barter

Barter always implies that one individual possesses something valuable for another individual and is ready to exchange it for something of similar value. So, the very basis of bartering is determining the value of goods and services for an even exchange. Traditionally, it was based on negotiating and estimating a medium value of products in question, though in some cases the values stated for a certain case of barter might differ from a medium price in monetary value and depend on the circumstances greatly.

In the distant past, market participants bartered with a limited number of goods they were able to produce themselves (such as agricultural production, livestock, hand-crafted objects and services like pottery or carpentry) or obtain accidentally on an irregular basis. Nowadays, a wide spectrum of possible objects to barter is available to almost any individual, as almost anything that might be purchased might as well be bartered if there’s an agreement between all the parties involved.

With the widespread use of the Internet, bartering has entered a new era of popularity, especially after the economic crisis of 2008, when the existing platforms for bartering experienced a drastic rise of users’ activity, and a variety of new online platforms for barter appeared. Nowadays, there is a wide range of available online portals to start bartering. 

Barter advantages

As barter implies, it allows acquiring goods and services without spending actual money. Such a system has always been popular due to this fact, with its popularity growing exponentially over the periods of economic difficulties. The reason for it is that it provides the possibility to save cash for specific highly important operations, while other issues being solved by bartering.

Another important benefit of barter lies is in a better and more balanced distribution of resources and goods in areas with frequent bartering. When barter takes place, the required amount of each product and service is well-known, so it’s easier to avoid excessive production and waste.

A closer connection and more productive partnership between the parties are also considered to be additional advantages of bartering.

Types of Barter

As it has been mentioned above, nowadays bartering is available to anyone and anything, be it an individual, or a business, or even a country. There are some significant differences in the ways each category barter, though.

For individuals, it’s not a one-step process, but a relatively simple one. Two or more individuals determine goods or services they are ready to give away, choose acceptable combinations for exchange, and negotiate values and according quantities or volumes of products they are going to exchange.

For businesses, bartering often goes similarly, although it’s usually backed by contracts and documentation, and often some limitations are put on the allowable amount of bartered products. Some companies don’t allow full bartering, requiring at least a small part of the deal being paid in cash. It’s also typical for companies not to barter directly, but enter special platforms providing convenient conditions for bartering on a subscription basis, facilitating the normative side of the process and easing a search for prospect barter partners.

A business and an individual might also engage in bartering between each other, if it’s convenient and acceptable for all participants. For instance, it’s a common practice when a company hires a maintenance worker at the cost of the company’s product being provided to said worker.

Concerning countries, it’s not actually typical for them to barter, but in dire economic situations such a practice may turn out useful, as it aids in reducing a debt and controlling deficits, and it also might be done without additional financing.

Barter and taxes

As an amount and regularity of barter depend only on the participants’ decision and desire, it’s often considered to be a possible way of gaining profits and revenue, so, in many jurisdictions bartering is charged with taxes.

In the US, businesses which start bartering are required to gauge a fair market value of the products they intend to exchange. It is usually calculated using the historical data and previous costs and prices for similar products. If such data is unavailable, the carrying value of the product is used then. The estimated value of the bartered product is viewed as a real one by tax authorities, and it must be reported and taxed in a relevant time period. There are actually several sets of rules for different types of barter, and it’s strongly recommended to consult a professional tax expert before bartering.