Trade Credit Clubs and Trading Circles
The Trade Credit Club model is extremely simple. Small Businesses form Trade Credit Clubs for immediate benefits to cash flow / working capital management. The more they intertrade with other members, the greater the benefit.
Members come together by mutual agreement and set policies together to maximise benefits and reduce trading risk.
Trade Credit Clubs are connected through Trading Circles for network effects, without loss of control or privacy.
HOW IT WORKS
- CONTINUOUS CLEARING: 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.
- PERIODIC SETTLEMENT: Members agree:
- 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.
- to as long a clearing period as makes sense to them - the longer the period, the more risk, and on the other hand the bigger the benefit to cash flow. Members negotiate what works for them (default period 30 days), change at any time.
- MUTUAL CREDIT: Members agree each to set 'soft' limits, positive and negative. Balances need only be brought to a position inside these limits (rather than fully zeroed) at the end of a clearing period.
- FEDERATION: Clubs need to stay at human scale to ensure high levels of trust, while on the other hand the benefits improve rapidly with larger numbers. So Clubs federate - join together into ‘clubs of clubs’ - using exactly the same rules (each club has a group balance in the club of clubs’ ledger), so that quickly there are thousands of potential trading partners. Clubs remain fully autonomous, and their ledgers remain private.
Clearly, much necessary detail as to governance, legal matters and the like is glossed over here - but we love questions - please ask!
Mutual Credit Services is seeking Expressions of Interest from business networks of all kinds - visit our site!