Interview: Credit Clearing in Slovenia – A Conversation with Tomaz Fleischman, Part 1

Recorded May 2025. Interview edited for clarity and length.

In this conversation, Tom Woodroof (Local Loop Merseyside) speaks with Tomaž Fleischman, Principal Scientist and Co-Founder of Cycles Protocol, and long‑time researcher of multilateral trade credit set‑off (often called Loop Clearing). We discuss how Slovenia’s decades‑old clearing infrastructure works, what it means for businesses on the ground, and why community‑owned versions such as Local Loop Merseyside matter.

Transcript

Background and Motivation:

Tom: Could you start with a brief introduction—who you are, what you do, and how you came to credit clearing?

Tomaž: I’m a systems engineer who spent most of my career in management consulting. Every project seemed to hinge on money, and there was never enough. That puzzle led me to Slovenia’s long‑standing practice called “pobot”: a multilateral trade credit set‑off (MTCS) system that reports debts, finds cycles/loops, and clears them to reduce mutual indebtedness. Discovering its impact convinced me to devote the rest of my career to developing and promoting the idea.

I soon realised Slovenia wasn’t unique: Romania, Bosnia‑Herzegovina, the Netherlands, Spain, and even Portugal had variations or attempts to implement them. These ideas exist inside mainstream banking and payment systems, but they’re often hidden.

Tom: How did that path lead to Cycles Protocol and the academic work that first put us in touch?

Tomaž: I had some luck, since my co-workers in the consultancy firms I worked at were the inventors and developers of the clearing system originating over 30 years ago in Slovenia. I started by helping them. Their idea was that clearing with trade credit (invoices) is something that has to be supported by the government. So all of our efforts were trying to get into government, and it turns out that this approach is extremely difficult for a small private enterprise in Slovenia. 

This frustration prompted me to try to find other ways. And what I found out is that debt discharge amongst firms is not just something that you can do with money like we are used to, but there are many ways of doing it. Now I know there are many forms of local monetary expression. 

From this, I was lucky to get in touch with Sardex, one of the largest local monetary groups, quite successful in Sardinia. There the idea was to make an academic paper, a little bit of research based on data from the community using Sardex. And putting on top of this the concept of trade credit set-off, to see whether the combined approach would create any benefits.

Our research showed that using two systems together actually increases the wealth and benefits for the users, and our expectations were that the research would increase the interest of local communities and also Sardex to jump on the idea of using both mutual credit and trade credit-set off together to increase the benefits for the communities. 

The interesting and surprising effect with the paper was that it raised interest in areas we did not expect. Central banks took notice, and so did local communities. But the interesting part is that no local community so far managed to create a network large enough, and dense enough to make productive use of the multilateral trade credit set-off. 

How Slovenia’s System Works:

Tom: You said that no community has yet created the trading network density in order to take advantage of these tools. And that speaks to what Local Loop Merseyside is about. But to focus on the technique you described, multilateral trade credit set-off (what we refer to as Loop Clearing), this is exactly what’s been done in Slovenia for a number of decades at the government level, and I think it would be interesting to hear more about the history of the mechanism, and how has it performed?

Tomaž: The story starts in socialist Yugoslavia. Payments weren’t run by banks but by a public “societal bookkeeping” agency, opening space for direct clearing of trade credits. Even with 1960s computers they were already finding loops.

Slovenia, as the most advanced economy within Yugoslavia and with the most technical knowledge, led this effort, and just before the collapse of Yugoslavia, a team in Slovenia where my colleagues were founders, made a new version of a payments system for Yugoslavia. 

A part of this payments system was multilateral trade credit set-off. With the collapse of Yugoslavia and Slovenia in the position of having to seek international recognition, we had to make a lot of compromises. One of these was to abolish the independent payments systems, and put payment systems back into the hands of banks, and in this process my colleagues, authors of the multilateral trade credit set-off algorithm that is still used today, were fighting to keep the pieces of their payment system in place. 

The compromise was to move the payment systems to the banks, except for multilateral trade credit set-off service, which was operated as a private public partnership, where the public partner was parliament, so that was a really interesting solution. When you start a country, interesting solutions end up in place! 

It turned out that having this multilateral trade credit set-off service in times of crisis is helpful. From the Slovenian economy’s point of view, we had lost 25% of our market due to the collapse of Yugoslavia, we had problems dealing with the rest of the world as we were not a recognised international entity, and having a very efficient internal debt discharge mechanism like multilateral trade credit set-off was crucial. In its first year the clearing system discharged debts worth 7.5% of GDP.

However, clearing is a complex coordination problem, and requires effort to work. Making direct payments using bank deposits is easier, so as the economy evolved and the banking system strengthened, the role of multilateral trade credit set-off started to diminish, although it is still an important part of the economy.

Today two systems remain: a government‑run platform with a very large membership but modest volumes, and a private platform that clears almost twice as much with fewer participants. 

Benefits for Businesses

Tom: It has clearly become an essential piece of financial infrastructure for Slovenia, and was also very helpful during the 2008 financial crisis, as it has positive effects on stabilising the economy as a whole. But Hhow do individual businesses experience the system?

Tomaž: For a centrally positioned firm (in the trade network) the description of the benefits goes like this. It’s not so much about the immediate benefit, or the immediate saving, though of course there is that. The composition of your balance sheet is better, because you are clearing your accounts payable via your accounts receivable. The accounts payable and receivable go down, but your assets, cash position, and capital stay the same, so the ratio of debts to assets  improves, your credit rating is better, your days-payable and days receivable go down.

In terms of monetary benefits, it’s more about the long term. Every user of this system says “because I successfully cleared, I can get favours”. A new project comes up and you need a increased supply, but you may not have the cash on hand to pay, but because of the positive relationships you have developed, you can ask for an extension, or an increased trade credit level. This is where the biggest benefits lie.

I might say at this point that these networks can be engineered, so this is a challenge for Local Loop, to move the larger part of the network to the centre, so that they can receive these benefits.

Tom: So it’s as much about the improved relationships and the opportunity for collaboration that this opens up as it is about the short term late payment and cashflow benefits.

Tomaž: You have significant and measurable short term benefits. But when it comes to what it means for business success, it’s the improved relationships and long term benefits that really make this a worthwhile exercise.

In the next part of this series, we’ll continue our conversation with Tomaž. Between now and then, follow us on LinkedIn to see the latest on our mission to build the most collaborative economy in the UK!