Barter club basics

Swapping goods or services through a barter club could keep much-needed cash in your wallet.

Want to swap? When you were a kid, that proposition might have got you a peanut butter sandwich in exchange for your tuna fish. Today, it might get you a washing machine in exchange for patching up somebody's roof. You can swap virtually anything through the hundreds of barter clubs -- and more than 200,000 businesses in North America, according to the National Association of Trade Exchanges -- that trade billions of dollars' worth of goods and services every year in cashless deals.

Barter clubs, also known as trade exchanges, are a little more sophisticated in the way they work than schoolyard swaps. Barter clubs are like banks, where members get credit for goods or services they provide. You can accumulate credits until you've got enough to pay for something you need from another member. You can find out what other members are offering through the club's website or newsletter.

Let's say you are an accountant. You could provide income tax advice and bookkeeping services to members of your club and put the barter dollars you earn in your barter club account. You can use them to buy a weekend away, office equipment or printing services -- any goods and services provided by the other members of the club.
There are large, well-organized barter clubs that are run like businesses and small, not-for-profit clubs. Typically, they charge members an annual fee plus a commission of about 7.5 percent of the cash value of each transaction, according to the National Association of Trade Exchanges.

Great for cash flow
Because goods trade at market rate and you have to pay income tax on what you receive, there are no bargains in barter clubs. But there are many advantages. First and foremost, you can buy products and services without dipping into your cash flow. That's a tremendous benefit when money is tight or when you need cash in the bank.
If business is slow or if your work is seasonal, you can provide your services to barter-club members, bank barter dollars and then spend your savings on advertising to promote your company, dinners out at participating restaurants, holidays or anything else you can't afford but need or want.

Participation in a barter club can also help promote your business through word-of-mouth by other members. And bartering allows you to make use of excess inventory. If you're in the appliance business, for example, you could trade a couple of floor-model refrigerators for new lighting fixtures for your store. You'd be in excellent company -- more than 65 percent of the companies listed on the New York Stock Exchange are presently using barter to reduce their surplus inventory, boost sales, and keep their facilities full, according to the International Reciprocal Trade Association.

Before joining a club

• Check out the club's membership. The more members, and the more diverse the membership, the more likely you are to be able to make use of it. Are there services and goods you're interested in? Would those businesses be potentially interested in your products? Call a few members and find out.
• Consider how you'll use the club. Are you interested in swapping for babysitting or gardening services, or doing business-to-business swaps locally or internationally? Make sure the membership of the club lends itself to your needs.
• Find out how long the club has been around. If it's brand new, it could go bankrupt before it takes off. A well-established club that has been around for at least five years is your best bet.
• Find out how the club will market you. Barter Business Unlimited lists goods and services from thousands of members on the Internet and in newsletters, have staff to introduce you to potential barter customers, and solicit business through e-mails, faxes and by hosting trade shows. Smaller clubs publish classified ads in a printed brochure or on their websites, and may hold meetings in your community.
  

If you run a large business, join a club that belongs to the National Association of Trade Exchanges or the International Reciprocal Trade Association (IRTA), which foster the commercial barter industry in the United States and worldwide, and uphold ethical business practices.

Apply your normal business practices to bartering. If you would usually ask for references and a written contract from a new client, ask a prospective barter partner to provide them.

Related Topics:

• Financial Literacy Guide
• Managing your money
• Smarter spending