Like every business transaction barter exchange too has some risks involved with it. Before entering barter deals it’s important to analyze the risks involved along with the benefits for both parties.
Imbalance in trade: there is a possibility of imbalance between what you trade and what you get in exchange. As different products and services have different value units. Also, it is very difficult to measure value of services rendered. For example, one hour of plumbing work is not equal in value to one hour of secretarial or accounting work. Hence, absence of common measure of value or a medium of exchange can lead to imbalances in barter. Therefore, using a well established bartering system or network helps you minimize this risk. The values of the goods and services being bartered are determined by these organizations.
Problem of fraud: imagine you trade with a man to handle his tax books for a financial year and at the end of the year he will give your home a maker over in interiors. You did the work for him throughout the year but when the time came for him to fulfill his end of the trade he backed away. What will you do? Hence, to avoid such risks it becomes necessary to check the credentials of your barter partner. Also, always consider the need for a written contract underlining the terms of the barter contract.
Force majeure: these are referred to those major events which are always recognized as events of force and can arise from several causes, the two most common being either “acts of God or nature” like floods, earthquakes, hurricanes, snowstorms, severe winds, etc. or acts of government” like war, emergency, riots etc. In these situations, you might not be able to complete a barter contract and this in turn might lead to breech of contract. So for managing these risks insurance is important.
Terms and conditions: before entering a barter network go through its policies and procedures. Ensure that you are aware of its working. Before joining the club, ask about the policy regarding members who quit when they have a surplus of units. At one club, the management would give us one year in which to spend them.
Prepare for taxes, barter is not tax exempt: Many times people think that as they are bartering they are not liable to taxation. That is not the case. Bartering dollars are exactly the same as real dollars. Earn a dollar in a bartering system, and you’ll still have to pay taxes on that money in real dollars later. Plan accordingly! Otherwise you might become a tax defaulter.
Bartering can be a great way to market your business and gain new clients and trade for services you need for your business. However, there are pitfalls. Plan ahead, avoid the risks.
Brought to you by Neha Gupta
Ormita Australia Limited