Organize Your Credit Group

The following is from an article by William J. Parsons in the April 1992 issue of Business Credit

A credit group must be legally organized, and its services and activities must be properly operated and monitored.  But, precisely because it is a "gathering of competitors," it must also present the image of a legal organzation with proper operations.

The group by-laws are the first benchmark.  These may be elaborate or quite simple, but they must contain three vital clauses.  First, the name of the group should be designated, and, to eliminate any confusion, this name should describe the credit group as closely as possible.  Second, the membership qualifications--reasonable, specific, and non-discriminatory--should be detailed.  And third, and perhps most important, a clause must state the purpose of the group.

This purpose or reason for the existence of the organization is usually outlined in general, simple terms, such as "the exchange of factual credit information," or "the exchange of factual credit information," or "the upgrading of the credit practices a of the industry," or similar wording.  This should be followed by a declaration of the intent of the group to comply with antitrust and other laws.  As an example:

       "....In no event, however, shall this group participate in or give consideration to any activity, plan, understanding, or arrangement that would restrict or interfere with the free and independent judgment by the members in the management or operation their respective businesses.  NOthing contained in these by-laws shall authorize or permit the group to perform or engage in any acts prohibited by law."

This purpose-and-legal intent clause should be combined with rules of conduct to ensure:

that only historical, factual credit information may be reported;

that prices may never be reportted or discussed;

that credit terms may not be discussed; and,

that there may be no agreements or understandings.

A clause should also state that the rules of conduct apply to all discussions, both those within formal meetings and any outside those meetings.  This Antitrust Compliance Statement should be read at the beginning of every meeting.  In 1976 a credit group was named as a defendant in an antitrust suit.  This statement, with testimony confirming that it was read at the beginning of every meeting, proved significant in obtaining a swift dismissal as a defendant for the credit group."

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