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May 15, 2007

How To Protect Yourself From the Risks Of Bartering

By James Stout, Former Writer for BarterNews

Beware of these possible problems from a barter club.  

  1. The club's owner might spend units (trade dollars)  which he or she has not earned; this situation is like that of a counterfeiter who prints money.
  2. The club can go out of business. If this happens, the units in our account become worthless -- at a value of $1 each. The club's termination might be due to cash flow problems, general mismanagement, legal difficulties, or another problem.

Beware of the dangers of unit surpluses. When we accumulate too many units, we encounter a few problems: (1) As explained previously, the units will have no value if the club ceases operations; (2) Units, unlike the cash in our bank account, do not accumulate interest while they are in our barter-club account. To be certain that we do not accumulate an excessive number of units, we can take these precautions:

  1. Be wary if you are besieged by other members who want your goods or service on your first day of membership. If that happens, refuse to accept any more units until you know why these people seem to be trying to get rid of theirs; perhaps the members want to dump worthless units from this unstable barter club. However, this phenomenon might not be a danger sign; instead it might be a favorable indication that your goods and services are badly needed by the club, and that you now have a significant new source of income.
  2. To use up our surplus of units we can use a few strategies:
    • "Stock up" on the few items that you can get through the club. For example, a five-years' supply of wrapping paper might be a better asset than a stockpile of unused units.
    • Use some of the techniques for turning barter-club units into cash. (Those techniques are presented in the chapter regarding cash flow.)
    • Recruit some businesses who have the goods and the services which you want. When those businesses join the barter club, we can receive a commission from the referral, and we will gain a new business in which to spend our units.
  3. Before joining the club, ask about the policy regarding members who quit when they have a surplus of units. At one club, the management would give us one year in which to spend them.

Beware of the possible dangers from other barter-club members.  

  1. Don't pay more when you are paying with barter-club units. If the members know that we will be paying with units, they might charge a higher price, or they might add a service fee. (In many barter clubs, this practice is prohibited.) If the club members are inflating their prices, they have to pay more for the goods and services, and they will also have to pay more taxes on this increased income; for example, if we sell a $100 typewriter at the inflated price of 200 units, we will have to pay the taxes of a $200 deal, as though each unit equals one dollar.
  2. Check the credentials of your barter partner. In some cases, we might want to ask whether the person has references, insurance, bonding, adequate training and experience, the proper tools, any necessary licensing or permits, guarantees or warranties, etc. If we are lending equipment, we need to know that the borrower has had experience in the operation and maintenance of that equipment.
  3. Remember that the barter club is not responsible for the actions of its members. Many clubs have a disclaimer; for example, when I worked for a barter club, I told the members, "We try to set up trades which will be acceptable for everyone. But we assume no legal liability for the exchange of goods or services or any faults or damage which might occur." The management might be unable (or unwilling) to resolve our legal dispute with a member -- although some clubs will intervene by talking to the offending member, or submitting the dispute to the club's arbitration board (or "ethics committee",) or perhaps dismissing the member.
  4. Check a member's credit and status at the club. For example, at one club, a transaction cannot occur until it first receives a purchase-order number through the club's office. If the sale is worth more than $500, the club's owner must provide written approval. 
  5. Consider the need for a written contract. In the contract, we can mention details such as a deadline, an exact description of the job (with sizes, quantities, materials), location of the job, delivery of any materials or the finished product, guarantees, limitations, and terms for collecting in case of default. In many cases, a handshake is legally binding in a deal. But if we go to court over the deal, a written contract helps to assure that we will get what we were promised. (The contract can be written by an attorney who is a member of our barter club.) Annie Proulx explains contracts in her book, What'll You Take For It? (Back To Barter), copyright 1981 Garden Way, Inc. The excerpt is reprinted here courtesy of Garden Way Publishing: "Barter agreements are legal contracts. Once you and your swapping partner have agreed on a trade, it's binding in court. Generally, barter transactions fall under the Uniform Commercial Code which most states have enacted. Under the code (UCC 2-201) when goods are exchanged between traders, if the value of the goods is under $500, an oral contract is sufficient to bind, unless there is some inequity or weakness in it, and it will stand up in court. Many traders do business on the proverbial handshake and their given word, even in large transactions. Naturally, these quick, simple, and mutually trusting deals are usually between traders who know each other well and respect each other's word. Almost all country barter is done this way, but many newcomers to swapping are not aware that their casual agreements to swap are binding legal contracts. True, your neighbor is not going to haul you into court because you failed to supply him with half the rabbits from the doe he gave you, but he could. When goods with a value of over $500 are exchanged, the code says a simple verbal agreement is not enough. There must be some written indication of the swap with the signatures of both traders affixed, or the agreement is not "enforceable." It is an excellent general policy to put swaps into writing if you are dealing with an unknown person for the first time, if you are involved in interstate swapping (different state laws may apply to the trade, and the traders have a choice of which state's laws they follow), if you are trading through the mails, or if the goods and services being exchanged are especially valuable, important, perishable, or in any other way fraught with possible problems and mishaps."