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    Local Loop NW is an initiative of two well-known business networkers in Lancaster - Michael Hallam and Peter Walmsley - together with experienced partners in Mutual Credit Services and Informal Systems to launch a Lancaster-based clearing club.

    A clearing club is a group of businesses which agree to submit invoice data to a service provider (in this case Local Loop NW), so that as much debt as possible can be cleared without any money changing hands.

    Software finds 'loops' which connect a number of business through their invoicing. Each loop is an opportunity to cancel out the smallest invoice, reducing the outstanding debt of all participants.

    A 'set-off notice' is then issued to all businesses in the loop, telling them the amounts which have been cleared from which invoices - both received and payable. The set-off notice can be used in standard accounting processes.

    Multilateral set-off is when this happens for many businesses (such as Local Loop NW members) at the same time. The clearing is simultaneous, so no cash need change hands.

Invoice loops are circular patterns of payments due that connect businesses in a network. In the invoice loop below, the three traders owe a total of £4300.

Once an invoice loop is found, the value of the lowest invoice can be set off around the loop.

In this example, £800 can be removed from each debt, and so the traders each need £800 less in working capital.

For each business, this is as if a customer paid early, with that income immediately used to pay off a supplier. Each one is left with lower debt, while profit and balance sheet remain unchanged.

The overall effect is to reduce the total owed to £1900, without any cash having yet changed hands.

    We are currently running a trial to collect local spending data from Lancaster businesses. We are doing this using this app, which will enable us to evaluate the viability of a Lancaster clearing club, as well as tell potential members how much they might benefit.

    We intend to launch the club and start clearing real invoices as soon as we reach a critical mass of participants. Experience shows that as few as one hundred participating businesses, with three of four trades each month with others in the network (with a mix of buying and selling) will be enough to provide noticeable benefits.

    Once we’ve reached this critical mass, we’ll invite you to submit real invoices so we can do real clearing to conserve your cash. We hope that this will happen in mid-2023.

    So far we have 33 businesses providing trading information.

    During the trial, we are not collecting actual invoice data, but estimates from interested businesses of their purchasing from local suppliers over a typical three month period.

    We will run our loop-detecting software - which is called MTCS - each time there is enough new data. We’ll then send out the results, providing you with regular estimates of the potential monthly benefit to your business of joining the club once it launches.

    During the current trial there is no charge, as the aim is just to find out who would benefit from membership in the clearing club and ensure the network is viable before we launch it.

    On launching we will invite trial participants to start clearing real invoices. For this service there will be a £10 monthly membership charge, plus a 0.5% fee on amounts of debt cleared (both VAT-included). Discounts will be available to members of partner business networks.

    These fees will cover the club’s operating costs, including the support services provided by Local Loop NW.

    Businesses in a clearing club such as Local Loop NW benefit through reduced debt, since clearing reduces the amount owed on payable invoices, without using cash.

    Reduced debt without payment means smoother cashflow, with less money required to pay for purchases.

    Immediate benefits are therefore improved cashflow, reduced late payment problems, and reduced stress.

    Medium term benefits include a reduced cost of finance, and a better relationship with the bank.

    From decades of experience in Slovenia, long-term benefits include better trading terms with a wider circle of trusted businesses, and a stronger economy overall.

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