MTCS is based on a clearing algorithm - developed over thirty years ago in Slovenia - that still helps thousands of businesses to this day.
To perform multilateral obligation set-off at the national level, Slovenian firm Be Solutions collects copies of businesses' invoices and runs a loop-finding algorithm each month to clear as many as possible. It then returns a ‘set-off notice’ to participants, informing them which of their invoices have been cancelled or reduced.
The system has helped Slovenian businesses through downturns (including the 2008 financial crisis), at one point clearing nearly 8% of GDP. This has saved large numbers of SMEs from bankruptcy and stabilised the economy as a whole, making it a powerful tool for building community wealth. Local Loop Lancaster & Morecambe team partners Informal Systems have developed an improved version of the loop-finding algorithm called Multilateral Trade Credit Set-off (MTCS), which we are implementing at the community scale in the Lancaster and Morecambe area through our app.
There have been two recent peer-reviewed scientific articles on loop-finding algorithms and their economic impacts: ‘Liquidity-Saving through Obligation-Clearing and Mutual Credit: An Effective Monetary Innovation for SMEs in Times of Crisis’, and ‘Mathematical Foundations for Balancing the Payment System in the Trade Credit Market’. The lead author of both is Tomaž Fleischman of Informal Systems.