What is a credit circle?
large industries, especially those involved in the distribution of goods, regularly expand credit agreements to their customers. These agreements are often a distributor and other businesses and may include very large amounts of money. Given that several competing companies within the sectors may have negotiations with the same client, it is beneficial for all these companies to know the payment procedures of this client. These companies often create a credit circle as a means of sharing this information.
The credit circle offers additional benefits for traditional credit control. Most importantly, the circle may have access to information about missed customer payments without 30 to 90 -day delay, which is common in loan report agencies. In addition, credit managers often notice the fineness that would not be reported to credit agencies. For example, if the company historically paid its debts every month, but only a percentage began, it would be an Indianator's financial stressthat could otherwise be overlooked.
It is common that the credit circle often meets, sometimes up to six to 12 times a year. In addition, group members are responsible for notifying others if the typical pattern of payments of the ordinary customer suddenly changes. The other circle members are then in a position to assess and reduce their own risk.
As the credit circle consists of several competing businesses, the group should pay close attention to avoiding unethical or even illegal behavior. Several laws were enacted, including the 1998 United Kingdom Act, to avoid economically harmful and unfair business practices. These laws stipulated what members of the credit circles could and cannot be discussed or agreed.
Members of credit circles may offer information on the specifics of debt payment; However, they cannot offer an nameRyho whether the debtor should provide loan of other companies. It is also not possible to discuss the customer's credit limits and the terms of the loan. Basically, credit circles cannot create a total credit line for a particular customer.
In addition, it is forbidden to create any agreement between members that would provide an unfair business advantage or discourage competition. Agreements on standardization of industrial prices or employees' wages are explicitly prohibited. In addition, the credit circle as a whole cannot make a joint decision to refuse business to any group or individual.