Table of Contents
Bartering is a trend. This is a way to avoid the use of cash in the company, a business approach that more and more companies are starting to use. Also known as bartering, the bartering is “the action or system of exchanging goods or services without using money.”
Have you thought about this way of obtaining services and goods for your company?
Bartering in business
The Latin term, quid pro quo, “Something for something” is the original definition of bartering that does not involve bargaining or price negotiation. Bartering occurs when two parties offer to exchange with each other exactly what they want at a similar value and quality. It is an accepted way of doing business.
For centuries, merchants, countries and even kings exchange goods to get what they needed or wanted. In today’s economy, with a constantly evolving digital universe, the exchange of goods and services with another company or individual is a vital means of commerce, as It follows from its advantages:
- It can be an effective way to present the products and / or services of any company to new clients.
- Allows you to use the unused capacity or downtime of a company that, otherwise, would be wasted. Using bartering, almost any type of business owners can exchange their excess inventory that might otherwise stagnate. Service providers can make exchanges during the slowest periods of their year. Your excess time, inventory and capacity can be converted into profits while reducing some cash expenses.
- Help the company improve cash flow management. Instead of the owner spending money to buy some goods and services, he can exchange to obtain them.
Bartering has the potential to provide beneficial returns with minimal investment. In fact, the companies that exchange are taking advantage of the real cost of the goods to buy a retail item, therefore, saving in cash.
Types of bartering
Two exists bartering agreement types:
- Bartering simple: It involves two participants who exchange items with a similar value. For example; A company owns a building with a basement or empty storage and they switch to a telecommunications company for a high-speed Internet connection and a website, in exchange for there being able to store their servers, for example.
- Bartering complex: It can be carried out through specialized platforms that grant its members credits for each item or service with which they contribute. Members can use credits to pay for goods or services offered by other club members. Searching for a barter partner on your own can be difficult and thus simplifies the process.
If you value bartering as a possibility for your business, do not forget that there may be tax consequences derived from this activity. All goods and services are valued for tax purposes according to their fair market value and are taxed accordingly. The income tax could be affected when bartering and, therefore, it is convenient to understand that they are operations in which it happens as if cash changes hands.
Further, it may happen that a bartering agreement does not result in an immediate deduction equal to the declared income; as with the equipment that is depreciating for several years.