Barter is an act of trading goods or services between two or more parties without the use of money (or a monetary medium such as a credit card). In essence, bartering involves the provision of one good or service by one party in return for another good or service from another party.
A simple example of a barter arrangement is a carpenter who builds a fence for a farmer. Instead of the farmer paying the builder MYR1,000 in cash for labor and materials, the farmer could instead recompense the carpenter with MYR1,000 worth of crops or foodstuffs.
BREAKING DOWN ‘Barter’
Bartering is based on a simple concept; Two individuals negotiate to determine the relative value of their goods and services and offer them to one another in an even exchange. It is the oldest form of commerce, dating back to at time before hard currency even existed.
Virtually, an item or service can be bartered if the parties involved agree to the terms of the trade. Individuals, companies and countries can all benefit from such cashless exchanges, particularly if they are lacking hard currency to obtain goods and services.
Benefits of Barter
Bartering allows individuals to trade items that they already have but are not using for items that they need while keeping their cash on hand for expenses that cannot be paid through bartering such as a mortgage, medical bills and utilities. Bartering can also have a psychological benefit because it can create a deeper personal relationship between trading partners than a typical monetized transaction. Bartering can also help people build professional networks and market their businesses.
On a broader level, bartering can result in optimal allocation of resources by exchanging goods in quantities that represent similar values. Bartering can also help economies achieve equilibrium, which occurs when demand equals supply.
How Individuals Barter
When two people each have items the other wants, both people can determine the values of the items and provide the amount that results in an optimal allocation of resources. Therefore, if an individual has 1kg of grain that he values at MYR5, he can exchange it with another individual who needs grain and who has something that the individual wants that’s valued at MYR5. A person can also exchange an item for something that the individual does not need because there is a ready market to dispose of that item.
How Companies Barter
Companies may want to barter their products for other products because they do not have the credit or cash to buy those goods. It is an efficient way to trade because the risks of foreign exchange are eliminated. The most common contemporary example of business-to-business barter transactions is an exchange of advertising time or space; it is typical for smaller firms to trade the rights to advertise on each others’ business spaces. Bartering also occurs among companies and individuals.
How Countries Barter
Countries also engage in bartering when they are deeply in debt and are unable to obtain financing. Goods are exported in exchange for goods that the country needs. In this way, countries manage trade deficits and reduce the amount of debt they incur.
How to Barter
So how can an individual successfully barter? Here are some tips;
Identify Your Resources — What items do you have that you could easily part with? Use a critical eye to go through your home, and consider possessions you may have in storage or that another family member or friend is currently using. If you would prefer to offer services, honestly assess what you could provide for others that they would otherwise pay a professional to do. It could be a skill or a talent or hobby such as photography.
Put a Price Tag On It — Successful bartering must result in the satisfaction of both parties. This can only happen if the items bartered are realistically valued. If you have an item you would like to trade, obtain an accurate appraisal. An item is only worth what someone is willing to pay for it.
To value a service, call around for local estimates from professionals to find out how competitively you can price your abilities. Remember to be honest about your skills and to factor in costs associated with the exchange; for example, shipping (for goods) or materials (for trading a skill).
Identify Your Needs — Be specific about what you are looking for in a barter exchange.
Search for Bartering Partners — After you know what you have to offer and exactly what you need/want in a barter situation, find a bartering partner. If you don’t have a specific person or business in mind, try word of mouth. Let your friends, colleagues and social network know about your specific need and what you want in a barter situation. Using media social will help much too.
Then, you also may check online swap markets and online auctions that have a bartering component.
Make The Deal — After you’ve found a barter partner, get the agreement in writing. Make sure you detail what services or goods will be involved, the date of the exchange (or work to be done) and any recourse if either party reneges on their part of the deal. If you are working through a membership-based bartering association, they will likely provide all the structure and paperwork you need for the deal.
Limits of Bartering
Bartering does have its limitations. Many bigger (i.e., chain) businesses will not entertain the idea and even smaller organizations may limit the amount of goods or services for which they will barter (i.e., they may not agree to a 100% barter arrangement and instead require that you make at least partial payment). But in an economic crunch, bartering can be a great way to get the goods and services you need without having to pull money out of your pocket.