Credit Circles are usually made up of companies that are competitors - which means that they generally have customers in common. Normally such circles meet formally once every two monhs or so to discuss matters of mutual interest, but it is usual for members to remain in touch in the interim by telephone or e-mail to request or give information on new accounts, mergers, or changing payment pattersn - and, these days, to alert fellow members of the withdrawal of credit insurance.
Costs and/or Fees
Some Credit Circles are run by their members, the administrative burden or preparing for and hosting the meeting falling to each member in turn. Such meetings are usually free to members save that each of them is responsible for providing coffee before the meeting, and lunch (usually sandwiches) afterwards.
Other Circles are administered and hosted by third parties - usually trade organisations or debt agencies - in which case there is always an annual fee to members. If the third party administrator/host is a debt agency, then it will usually look to obtain debt collection work from members on a 'no collection' no fee basis.
We specialise in administering Circles that are hosted by members. These are sometimes free to members save for the cost of hosting the meeting, dependant upon the amount of administration involved. Obviously, we also look to obtain debt collection and other work from members - but we do NOT work on a 'no collection, no fee' basis. Our fees for out of Court collections are not rendered on a time cost basis. Clients are billed for successful out of Court recoveries on a reasonable and agreed percentage basis. Where collection proves impossible and clients decide against issuing legal proceedings we apply a minimal handling charge.
Administering a Credit Circle
Credit Circles that are administered and hosted by members are obviously the cheapest way to go - but the administrative burden that has to be shared by those members can be prohibitively time-consuming.
A list has to be prepared and circulated to all members prior to the meeting so that they can identify which customers they want to discuss at the meeting and why - payments slowing or overdue, for example.
Once the names and addresses on each of the lists have been checked for accuracy (either on-line or with Companies House), the lists need to be amalgamated into an Agenda which must then be circulated to members in good time for them to check their ledgers (and their memory banks!) before the meeting.
Someone has to chair each meeting and take notes of everything that is said so as to abide by guidelines recommended by the Office of Fair Trading.
It is therefore often more convenient to leave the administration of a Circle in the hands of a third party - and pay fees if necessary - even if the Circle has as many as twelve members and the administrative tasks involved only fall to each member once every couple of years.
What We Can Do to Help
We can try to find an appropriate Credit Circle for your Company, take over the administration of your existing circle, or set up a new one. In many cases these are free services. In the meantime, however, and whether you are interested in getting involved with a Trace Credit Circle or not, you might want to take a moment to review the rules that govern such Circles, because many of those rules also apply to the exchange of information that regularly occurs between competitors in the ordinary course of business where no formal Credit Circle exists and no formal meeting ever takes place.
Rules Governing the Behaviour of Competitors
The Competition Act 1998 became effective in March 2000, replacing the Restrictive Trade Practices Act 1976; the majority of the Competition Act 1980, and related provisions in other legislation concerned with competition. The Act outlaws agreements, business practices and conduct that damage competition. It is a very tough piece of legislation.
Prohibited activities include discussing price; the amount of credit offered; the terms upon which credit has been offered; credit limits, or any elements of pricing policy. It is also prohibited to fix aggregate credit limits, or offer personal opinions as to whether credit should be offered at all - for example, whilst it is permissible to say "I have not given credit", it is not permissible to say "I would not give credit if I were you".
In other words, ANY discussion concerning price, discount, terms of trade, and any element of pricing policy by trade associations, professional bodies or self-regulating bodies falls within the scope of the Act (known as the Chapter 1 Prohibition) and/or Article 81 of the EC Treaty with which it is associated, and which prohibits agreements which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market.
'Self regulating bodies'like Credit Circles naturally fall within, and can therefore fall foul of, the Act (or of Article 81) if they operate anti-competitive agreements, become vehicles for competitors to collude, or if their effect is to prevent competition between members. So can competitors who are NOT members of any trade association, professional body, or self-regulating body, but who conspire or collude to contravene the Act under less formal circumstances.
It is unlikely that any Credit Circle - or any less formal group of competitors - need concern itself with this legislation provided they confine themselves to the exchange of information on payment history, problem customers, and the potential credit-worthiness of particular customers in an acceptable manner - but everyone needs to be aware of what exactly constitutes 'an acceptable manner'. The Office of Fair Trading has the power to investigate complaints from those who consider that they have been harmed by anti-competitive practices, and the penalties for intentional or negligent breach of the Act are swingeing: fines of up to ten per cent of the UK turnover of businesses involved for up to three years, and the criminal prosecution of individuals.
Recommended Guidelines for Trade Credit Cirles
It was never the intention of the Competition Act to prevent Credit Circles from performing a useful function - and in fact no law governs the composition or organisation of Trade Credit Circles. However, in the light of the legislation, it would be as well were any formal meeting to err on the side of caution and follow the recommended guidelines.
Meet formally: that is to say the meeting should be properly convened to meet at a pre-determined location and time and have a written agenda.
Ensure that Minutes are taken at any meeting where the matters discussed relate to anything outside an acceptable exchange of information.
Have formal non-discriminatory Membership Rules and a Complaints Procedure.
Update members on relevant legislative developments.
Consider beginning every meeting with a Chairman's Statement reminding those present of relevant legislation like the Competition Act 1998 and the Data Protection Act 1998.
Ensure that all matters discussed at the meeting remain confidential to its members. THIS IS EXTREMELY IMPORTANT. Many people attend more than one meeting because the interests of both meetings overlap. Many people correspond with others who are involved in the same trade but who do not attend more than one - or any - meeting. There must be no leakage of information from members of a Circle to outside parties under any circumstances.
It should be stressed that these guidelines are not compulsory, but compliance would certainly be helpful in the unlikely event of investigation by the OFT. Members should in any event exercise discretion in any exchange of information at any time.
