Trade Credit Clubs
Trade Credit Clubs in a nutshell The Trade Credit Club model is extremely simple. We describe it in a few stages, as follows: HOW IT WORKS CONTINUOUS CLEARING: Businesses come together by mutual agreement into a Trade Credit Club. Members agree: to submit headline details of all invoices within the club to a 'Service Member' (at minimum: amount, date, reference, counterparty), whose role is to maintain a Club Ledger showing each member's balance in respect of the Club as a whole. to consider each invoice settled in full once it has been entered into the Club Ledger. to keep their balance on the Club Ledger within agreed ‘hard limits’ - a negative (maximum credit) and a positive limit (maximum exposure). Each Member’s limits must be acceptable to other club members. to make or receive one cash payment to/from the club on Settlement Day - the end of a clearing period - to bring the Member’s balance back to zero (default period 3 days).
PERIODIC SETTLEMENT: Businesses agree to as long a settlement period as makes sense to them - the longer the period, the more risk, and on the other hand the more benefit to cashflow.
MUTUAL CREDIT: Businesses agree each to set 'soft' limits, positive and negative. Balances need only be brought to a position inside these limits on a Settlement Day (rather than fully zeroed).
FEDERATION: Clubs need to stay at human scale to ensure high levels of trust, while on the other hand the benefits improve rapidly (exponentially) with larger numbers. So Clubs federate - join together into networks of clubs - using exactly the same rules (each club has a group balance in the network ledger), so that quickly there are thousands of potential trading partners. Clubs remain fully autonomous, and their ledgers remain private.
THE BENEFITS Immediate benefits are: Decreased cashflow volatility - cashflow is smoother, with sharp lows reduced. Decreased trade risk. This works on several levels Non-payment within a group will damage reputation, so is less likely.
Even if a member cannot pay (or even defaults) on Settlement Day the invoice issuer’s balance has already been credited - their purchasing power within the club (and across the network) is not affected, and neither is their balance sheet.
Clubs can adopt a variety of other approaches to further reduce risk - these will be more effective as a group than for any business individually.
Longer term benefits depend on how Members wish to operate their club; possibilities include: joint negotiation on insurance and other services for preferential rates. joint bidding on larger contracts joint action to increase the level of internal trade (by adding new business types into the mix, for instance).
Clearly, much necessary detail as to governance, legal matters and the like is glossed-over here - but we have answers for many follow-on questions - please ask!.