- Bartering allows businesses to swap their products and services for those of another company
- Trades can be done informally or via formal exchanges
- Bartering platform BizX reports increased engagement during COVID-19, especially among restaurants
It’s not uncommon for small businesses to work out trade deals among themselves. For example, a marketing company might strike a deal with a restaurant to improve its website in exchange for a few meals. This type of bartering has become more common during the COVID-19 pandemic, as companies look for ways to help free up their cash flow.
Bartering can be done through an informal agreement or through a formal exchange. Such exchanges typically set up a virtual form of “barter dollars” that can be earned by providing products or services and spent to acquire another company’s products or services. Participants work out what sort of exchange rate is fair, such as how many products must be provided for a particular service.
The bartering platform BizX, which has more than 7,000 participating businesses, said it added 265 new members in 2020 during the pandemic. Members spent approximately 13 million barter dollars during the year, with more than 1 million barter dollars coming from restaurants. BizX says several businesses were able to make exchanges that helped them weather the pandemic, such as restaurants acquiring the materials necessary to expand their outdoor dining options. The platform also became a useful way for members to make charitable donations.
Bartering has the benefits of helping companies improve their reputation and increase their sales. The National Federation of Independent Business says it also allows companies to trade away excess inventory for useful services instead of selling it at a discount, and can also assist entrepreneurs with accessing products or services that might otherwise be difficult for them to acquire.
Products and services received via bartering should be tracked, since they are considered income and must be claimed on taxes. One advantage to using a formal bartering exchange is that transactions are tracked and the company owner is provided with a 1099 form at tax time.
One risk of bartering is that the company you’re trading with may not provide their own goods or services until you have provided yours. This can be particularly onerous if there is a high rate of exchange tilted against you, such as having to provide five of your services to receive one of another company’s offerings. For this reason, it’s important to have a written contract outlining what’s being exchanged, when it will be provided, and other details.
