Trade Credit Club Model

The Trade Credit Club model is extremely simple. We describe it in a few stages, as follows:

HOW IT WORKS

1. CONTINUOUS CLEARING: Businesses come together by mutual agreement into a members' club. Members agree:

   1. to set a negative balance limit beyond which they cannot trade within the club, and a positive balance limit to set their maximum exposure to the club members. These are known as the 'hard limits'. Each members' limits must be acceptable to other club members.

   2. to submit headline details of all invoices within the club (at minimum: amount, date, reference, counterparty) to a 'Service Member', whose role is to maintain a Club Ledger showing each member's balance in respect of the Club as a whole.

   3. to consider each invoice settled once it has been entered into the Club Ledger .

   4. to pay in to the club at clearing periods (default period 3 days) as agreed in cash to clear any negative balance, and to accept cash in clearance of any positive balance

2. 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.

3. MUTAL CREDIT: Businesses agree each to set 'soft' limits, positive and negative. Balances need only be brought to a position within these limits on a settlement day (rather than zeroed).

4. FEDERATION: Clubs need to stay at human scale to ensure high levels of trust, while on the other hand the financial positives of operating in this way get much better 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 inside the network. Clubs remain fully autonomous, and their ledgers remain private.

THE BENEFITS

Immediate benefits are:

• Decreased cashflow volatility - cashflow is smoother, with sharp lows and highs eliminated.

• 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), the Club Ledger has been credited to the invoice issuer immediately - their purchasing power within the club is not affected, and neither is their balance sheet. Clubs can use various approaches to further minimise impact - these will be more effective as a group than for any business individually).

Longer terms benefits depend on how Members wish to operate their club, some examples are:

• 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 to those questions when they are asked.
Equally clearly, there are many possible framings of such a simple set of mechanisms - some examples follow in replies to this post.

Here's a 2 page introduction intended for small businesses: https://docs.google.com/document/d/1uSBO90ICyA-nJaAZlbFF2Dbi1gdzeWorcKl4mIEqti0/edit?usp=sharing

Here's a more verbose description with business network conveners in mind: https://docs.google.com/document/d/1ofHJpalh83z0YAGBXrJHOOS-wOPYck24VMZwfqch7o4/edit?usp=sharing

Here's a description with a Community Wealth building slant: https://docs.google.com/document/d/1ccsQ_mnU-r9iD48seNpSUz6dKQeygW_xj2_BgUl2rFU/edit?usp=sharing