How can I negotiate barter for a contract?

Question

If I have a client who is interested in bartering their goods or service for my service, how would I propose negotiations that would protect myself, my client, and my work?

The client is offering to barter the construction of a hand made guitar in exchange for a web site that I will be building alone.

Since there is no plan for cash to change hands, the value of services seems hard to quantify. How should I write out a contract that ensures proper delivery of goods and services on both ends? Also, should I take into account any taxes, even though no money is changing hands?

The entire transaction will take place in the state of New York in the US.

Answer 1

Regarding taxes, in theory (at least in the US) you are supposed to report fair value of goods received but that is difficult to quantify. After all nothing has a singular, objective fair market value but rather a range of plausible values. The way I do it is simply to invoice the customer for the fair value of my services, and then buy their goods and services out of their accounts receivable balance. In this view it isn't really a "barter." Rather it is a straight-forward invoice and collection of debts albeit in a non-traditional manner. There may be agreements which specify the manner of the goods, but the point is that the fair value to me is what I would have invoiced someone else for the same work. The fair value to my client is the work that I did (that would have been paid for in cash) and so as long as the value is plausibly around that range, I don't see anyone questioning that approach. If the value is not plausibly in that range, you wonder who is being taken advantage of.

I would also assume that any applicable sales taxes would apply.

A few things I would prefer to see in the contract if it were me:

1. Customer has option of paying in monetary or non-monetary forms. You invoice for a monetary amount. They deliver a non-monetary item in payment. You can include in the contract then that X will be deemed payment for Y. The reason here is that this helps both of you. They get to record the sale at your invoice price. You get to record the purchase at your price. You have documentation of an agreed upon value of the goods to be delivered. Worst case, you just get what you would have billed someone else. In the event that services are not delivered by the customer this also gives you a way to more easily collect.

2. Put the goods and services delivery terms along with payment terms together. Delivery of services or goods by them is payment for your invoices.

Answer 2

I think the definitive answer to this question is very strongly dependent upon the region in which you're considering doing business, so I think you could improve your question by including a region-specific tag or at least mentioning the country (perhaps even state) where the business transaction would take place.

In particular, in the US, barter exchanges are considered taxable revenue and must be reported to the IRS. The Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982 did that for us. However, other countries have different laws related to bartering, which is why your question could be improved with region information.

Answer 3

I cant advise regarding taxes, I am no expert in that field (and it will vary depending on the country).

But for the other part - I think the client can specify (at least roughly) the price of the guitar (and I presume you play the guitar so you can tell if his price estimate would be what you will be willing to pay for such guitar if you went to the shop to buy it).

You can specify what you will supply for such price (and I cant stress out this part enough - what is not in the scope of contract).

So it will be in general normal contract - you specify what you deliver and what you wont deliver and the price will be the guitar instead of money.

There is one drawback though - you cannot ask for "cash advance" - if he crosses you, you wont have any compensation for your work. But you might agree on some kind of compromise (i.e. he will pay the deposit, you build the site and when he provides the guitar you will return the deposit). That depends on if client can be trusted and if you believe that the client wont get into financial difficulties before completing his end of the bargain (in that case you can bet it will be much harder to get what is yours and it will take longer). Since he proposed the barter I would pay close attention to this detail.