What You Need to Know About Barter: Key Steps to Successful Deals
It’s possible to receive goods and services, but not pay for them if you use barter. This is a special form of trade that is conducted without the use of money. You can compare it to demo games at https://22bet.com: everything is the same, but no money is involved. Let’s find out what the advantages of barter are and get useful information on how to properly execute such mutual settlements with counterparties.
Table of Contents
What is Barter
Barter is a way of trading without the use of money and cash, including bank cards. In simple words, the concept implies that one party provides goods to the other party in exchange for things or services, not money. The essence of barter lies in the following conditions:
- Goods have approximately the same price.
- Goods can be exchanged not only for goods but also for services and vice versa.
- Barter exchange can take place not only between people or companies but also between countries.
- The law doesn’t give a clear definition of barter deals, but they are quite legitimate if they are done according to contracts properly drawn up and signed by all parties.
Barter as a form of trade is the oldest process whose history began as a natural exchange before hard currency existed. Today, it’s also used quite often, especially by start-up entrepreneurs who, because of their financial situation, don’t yet have the money available to make payments to contractors. Exchanges between individuals are rarely referred to as “barter,” but are generally used when the parties are legal entities.
How Barter Cooperation Works
The algorithm for making an exchange is simple:
- A person or company is looking for a partner who is comfortable with barter work. Often this form is used, for example, popular bloggers who advertise the manufacturer’s products not for money, but for the opportunity to use them, receiving a certain batch or a number of additional bonuses.
- The terms of the project and the nuances of the barter relationship are fixed not by words, but by an agreement that the partners sign.
- Participants are looking for solutions if the price difference between their goods and services is high. For example, one of the parties whose goods are cheaper can provide more of their products or pay the difference in cash.
Thanks to barter, companies can maintain normal business processes, not to stop production and shipments, without taking money out of circulation.
Types of Barter
According to one of the classifications, barter is divided into several types, depending on the number of participants:
- Closed barter. Two parties are involved in the exchange, which takes place over a limited period of time. Each of them exchanges and receives strictly certain goods, the amount of which is specified in the contract.
- Open barter. The transaction involves more than two parties, the exchange isn’t fixed in time, goods and services can be changed in different proportions. For example, a company puts up a cubic meter of timber and exchanges it for transportation or storage services, assessing proportionally how much timber each participant receives.
Depending on the type of participants, the following variants of barter are distinguished:
- Individual, involving individuals exchanging the resources they have.
- Between firms, when producers of goods and services or trading networks exchange their products.
- Between countries, usually used by states with significant debts and unable to pay with currency for necessary goods.
There is also electronic barter, which takes place with the help of special services that allow interested parties to find each other.
How to Start a Barter Business
To successfully conduct business using barter, it’s worth adhering to the following algorithm:
- Identify resources – goods and services that can be offered for it.
- Determine the price by studying similar offers in the market or by ordering a professional appraisal.
- Look for needs – what goods or services are needed in exchange for their own of equal value.
- Finding counterparties willing to make the exchange.
- Conclude the transaction with the signing of a written agreement that details information about both parties and the products to be exchanged.
The following items must be present in the agreement by means of which the barter transaction is formalized:
- The name and requisites of the parties.
- A detailed description of the objects of exchange with an indication of the quantity, volume, characteristics, amount.
- Calculation of the costs of delivery and determining which party must bear them.
- Indication of the terms, during which the exchange should take place.
In a contract of exchange, as in any other, it’s also necessary to include a paragraph on the procedure for settling disputes and other conditions. If you have no experience in drafting such documents, it’s better to consult a lawyer.