Tuesday, April 2, 2013

Barter Customers: How to Convert to Cash

I'm a big believer in bartering. I have bartered services for businesses I've both owned or served as the CFO, COO or CEO of. I was first exposed to the concept by a Fortune 500 company I worked for that engaged in bartering in one division on a regular basis. This company called the transaction a "swap". They bartered space on one fiber optics line for space on another line.

GAAP and FASB rules allow bartering. When you use accrual accounting, you must recognize the provision of your service as revenue in the quarter you provide it. You recognize the service you receive from the other as an expense in the quarter that company provides it. You must issue Form 1099-B to any company you bartered with, including corporations. That's the technical side.
If you enter into a long-term barter arrangement, you may wish to change that relationship to one based on cash payment. For example, You may start off as a newbie marketer with a brand new firm and barter for weekly hour long massage services. (I see both sides of this barter request on craigslist often!). Over the next year or two, you may grow to the point where your smallest customer pays $1,000 per month and your massage barter is only "paying" you $400 in services. You don't want to increase your massages to 2.5 hrs per week, so you need to convert to paying in cash or drop the massage therapist as a client.


Read Inc. magazine's online article, Take the Money, to learn more about converting your barter customers to cash customers.

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