Friday, July 4, 2008

Web Barterers' Tricks of the Trade


Cash-strapped consumers and businesses are coming up with creative ways to fight higher costs. One practice gaining popularity: the ancient custom of bartering.

Teia Henderson, a self-employed accountant in Cary, N.C., says there has been less demand for her services lately amid a sputtering economy. So rather than plunk down cash for new bunk beds for her children, she posted an online ad offering to exchange accounting services for a set.

"It's not about charging clients money," says the 35-year-old Ms. Henderson. "It's about the end product -- getting the bunk beds." This method of doing business also helps her add to her client list. She now does the books for a contractor, for example, who in exchange installed a patio in her backyard.

The rise of bartering for goods and services means consumers are now trading for such things as wedding services, tombstones, breast augmentation and Botox treatments. The cash-free transactions are often facilitated through the Internet and barter exchanges, which are third-party record keepers that coordinate trades between business owners.

A number of online bartering Web sites -- including U-Exchange, and Barter Bucks -- are seeing significant growth. Online classified-ad site Craigslist also has seen its monthly "barter" postings across all cities double to 121,173 in April, up from 63,624 in April 2007.

Depending on the site or barter exchange, consumers can choose whether to trade directly with someone who has something they want or to "bank" their credits -- some of which are worth thousands of dollars -- and use them at another time.

But before signing up, individuals need to assess the potential costs. Some barter businesses have no fees, but others charge an introductory or annual rate, often a few hundred dollars. They also may charge a monthly fee of about $10 to $15 and a percentage of the value of the trade, often 10% to 15%.

Traders need to scrutinize the fairness of the trades, consider the tax implications and exercise the same due diligence they would with a cash purchase. This typically means checking references and inspecting products. "The drawback is that it's not as easy to trade as it is to use cash," says Tom McDowell, executive director of the National Association of Trade Exchanges, an industry association for barter-exchange companies in Mentor, Ohio. "There's a little bit of an inconvenience because you have to be flexible about where you're doing business."

Traders also need to consider the potential tax liabilities. The Internal Revenue Service says income from bartering is taxable and needs to be reported. Some barter companies keep track of the credits consumers earn with their trades and send them the necessary tax documents.

"There's no tax advantage to bartering and no tax disadvantage," Mr. McDowell says. "It's treated exactly the same as cash."

In the past two years, membership in trade-exchange businesses has climbed 10% to 15% annually compared with 5% to 8% annual growth prior to that, says Mr. McDowell. He estimates his members do $3.8 billion to $4.3 billion in trades a year.

Debbie DeSousa, chief executive and president of Barter Bucks, says trading also provides businesses with more potential clients and revenue, even if it isn't in cash. Barter Bucks works like a bank, but it stores "barter bucks" rather than dollars. Participants use cash for shipping, tax and to leave a tip for, say, a restaurant or hair stylist.

"You can't go shopping until you put money in your account," says Ms. DeSousa, who personally has bartered for everything from dental work and eyeglasses to auto repairs and part of the cost of a manufactured home.

Richard Harris, president of the National Commercial Exchange, a St. Louis-based barter-exchange business, says: "We had one person find his birth parents by hiring a detective with his [trade] credits." Mr. Harris says he has also had clients avoid bankruptcy by paying off their debts with credits.

No comments: