Credit management focus: Credit circles
Does your business benefit from participation in a credit circle?
Have you ever considered tapping into this resource? If not, you’re potentially missing a trick when it comes to safeguarding your business against late payment.
What is a credit circle?
A credit circle is a means for businesses to share important creditor trends – typically with other members of a trade association. This allows businesses to access instant information on the creditworthiness of customers both existing and new.
Members belonging to credit circles tend to meet regularly to share their experiences. In the interim, members commonly post information online so that any changes to payment habits can be considered when making credit decisions.
- 14 steps to monitor the creditworthiness of customers in 2021
- How well do you know your customers?
- 21 warning signs that your customer can’t afford to pay
- Should you offer payment plans to late paying customers?
How can they help?
In a climate where the financial health of businesses can change overnight, a credit circle can be a highly useful resource and complementary to the use of credit reports.
While credit reports provide information such as whether a business has County Court Judgments filed against them, they don’t always provide up-to-date information or anecdotal details.
Credit managers are able to notice subtle changes that would not necessarily show up on a credit report.
For example, if a customer’s typical payment pattern suddenly changes it could be an indicator of financial stress.
Sharing these experiences with a credit circle can help others to assess and limit their own risk.
Things to consider
As a credit circle is composed of several competing business, it is important to avoid any unethical or even illegal behaviour.
Members of credit circles may offer information regarding the specifics of a debtor’s payments.
But, they cannot:
- Offer opinions on whether or not that debtor should be given credit by other companies
- Discuss customer credit limits and the terms of credit arrangements
- Establish a distributor-wide total credit line for a particular customer
- Form any agreement among members that would provide an unfair business advantage or discourage competition
- Make a joint decision to deny business to any group or individual
Are you a member of a credit circle? Do you think they have a place in your industry? Let us know in the comments below.