Ill.) American School (Lansing.

Cyclopedia of commerce, accountancy, business administration ... [microform] online

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On inquiry from _
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Fig. 37. Notice of Inquiry Sent to Salesman, with Blank for His Report

in size, punched to fit a small ring binder small enough to be carried
in the pocket. Both sides of the card are used, providing for a record
of expenses covering a period of one week.

SALES RECORDS

Regardless of the nature of the business, whether sales are made
through the mail, by traveling salesmen, or resident agents, sum-



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ADVERTISING AND SALES



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maries of sales from day to day, supply much valuable information
to the sales manager. Sales summaries which show the amount of
sales each day and month, are the working charts of the sales manager.
It should be remembered that these statistics are chiefly valuable
for comparative purposes, but to insure comparisons of value, the
statistics must be compiled in proper form. It should be possible
to compare, not alone total sales, but the sales of each man in different
periods, th^ sales of one man with those of another, the sales in differ-
ent territories, the sales of different departments, the sales by mail
with those of personal salesmen.



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Fig. 38. Traveler's Weekly Statement of Expenses

Daily Sales Records. The daily record of sales should show
the sales of each department, the sburce of the sales, and the pro-
portion of cash and credit sales. These should also be divided as
to wholesale and retail.

A convenient form is shown in Fig. 39. This is a sheet punched
for a loose-leaf book, and there should be as many copies as there
are men in the organization who are directly interested. , Besides
the sales manager, the general manager, the advertising manager,
and the comptroller are all directly interested. By using carbon
paper as many copies as needed can be made at one writing.



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ADVERTISING AND SALES



63



Monthly Sales Records. Fig. 4() represents a sales sheet arranged
for a monthly summary, the statistics being obtained from the daily
records. The monthly summary follows the same lines as the daily
record, except that sales are not divided by departments.

Where the business is divided into several departments one of
these monthly summary sheets can be used for each department.

These daily and
monthly summaries pro-
vide for a comparison of
wholesale with retail,
mail order with personal
salesmen, and depart-
ments. If there is a gain
in one department and a
lass in another, or a fluc-
tuation in total sales,
these summaries point
out the source, showing
where greater efforts are
needed and where praise
is deserved.

Salesmen's Records.
While the sale summaries
described afford many
valuable comparisons,
they do not provide a
classification that will
indicate the value of each
salesman. There should
l>e a record showing the
volume of business of each man. The form shown in Fig. 41 shows
a card used for a daily and monthly record of one salesman. The
form might be elaborated to show cost of goods, salary, expenses,
gross and net profits; but the tabulating of this information is
more properly the work of the statistical department.

* These cards should l)e filed alphabetically by name of the sales-
man, and divided according to states. They will then show the sales
of each man and in each territory.



DAILY RECORD
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64



ADVERTISINTx AXD SALES



For a business in which goods are sold by resident agents, a card
similar to the one shown in Fig. 42 should be used. The upper half
of the card provides for the recording of certain essential information,
while the lower half is used to record sales.



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THE CREDIT ORGANIZATION



THE CREDIT MAN

Acknowledged specialists may be employed in every branch of
an enterprise, the shrewdest brains may be engaged in buying, pro-
ducing, and selling, but the final conservator of the business is the
credit man; others may be profit makers, but he is the frofit saver
in every commercial organization.

He is on guard constantly — always on the lookout for the slightest
sign of danger, ever ready to take prompt and vigorous action to avert
disaster to his house or to lend a helping hand to a customer. His
duties make him the most misunderstood man in the entire organiza-
tion.

He is thorough, methodical, painstaking, a keen student of
human nature, possessing faith in the inherent honesty of his fellow
men. The insistent search for facts that he demands, may cause
him to be regarded as an inquisitive busybody by the very customer
whom he desires most to help; as a carping critic, by the salesman
of his own house.

Through it all he remains faithful to his trust, watchful of the
interests of his house, and has the satisfaction of knowing that in
spite of his mistakes but a remarkably small part of his credits
prove bad — that where his conservatism has lost hundreds in trade,
it has prevented the loss of thousands.

On no man in the organization is there such tremendous pressure
brought to bear to secure favors; on no man do the consequences of
his own mistakes come back so surely. The credit nfan must be
firm, and, while availing himself of every reliable source of informa-
tion, he must stick to his decisions, for he is expected to collect from
those to whom he has extended credit. Every other man has a loop-
hole through which he may escape criticism; if a customer is lost
because goods are unsatisfactory, it may be **up to" the salesman,
the shipping clerk, the superintendent, a foreman, or even an ob-

Copyright, 1009, by American School of Correspondence.



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2 THE CREDIT ORGAiNIZATION

scure mechanic. The credit man has no one on whom he can place
the blame; if a customer fails to pay, no reason short of an earth-
quake will relieve the credit man of the responsibility.

So much for the credit man. Now for a discussion of the work
he is expected to do, the machinery of his oflSce, and his methods of
operation — for the writer disclaims any intention of attempting to
teach the student how to become a credit man.

INFORMATION REQUIRED

The most important function of the credit man is the determining
of the credit risk — the amount of credit that can safely be extended to
each individual. When he consents to the delivery of goods to be
paid for at a future date, he is loaning his firm's money.

Before credit is granted extreme care must be exercised in
determining the ability of the purchaser to pay, or that he will be
able to pay when the bill is due. After necessary precautions against
assuming too great a risk have been taken, a further insurance against
loss is included in the amount added to cost — a certain per cent of the
profit is expected to offset the risk.

In determining the credit risk, different classes of information
are necessary in different lines of business. While certain specific
information about individual applicants for credit is necessary, the
subject may be divided into two general classes — wholesale and retail.
Under the head of wholesale, is included information about all business
concerns, whether a single proprietor, a partnership, or a corporation.
In a general way also, the same information is required in respect
to these concerns by the banker, the manufacturer, the jobber, and
the wholesaler. Under the head of retail, is included the transactions
of a retailer with his customers, who may be regarded as individuals.

Leading authorities on the subject of credit place the factors
which determine the credit risk in two classes — the man and the
business. Under the first heading is considered the business morals
of the debtor and his ability in, and familiarity with the business in
•which he is engaged. The second heading — the business — is con-
sidered from the financial standpoint, divided as to its assets and
liabilities, and the profits or losses made in its operation.

But as to the relative importance of the two principal factors—
the man and the business — authorities differ. In his valuable con-



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THE CREDIT ORGANIZATION 3

tribution to the literature of credits, Mr. E. St. Elmo I^wis takes the
stand that the man — ^his character — ^should be considered secondi^ry.
To quote from Mr. Lewis' book:

If goods are the basis of all credit, character of the owner is and should
be an after consideration. The very first question any credit man should ask,
is, can he pay?

The question of a man's ability to pay is becoming of greater case of
solution.

The question of the intention or inclination to pay must always be
shrouded in the nebulffi of psychological theory.

What is the applicant worth? is the cruical test. Then we shall test
him by another. What sort of a man is he?

Do we buy a law suit when we sell him goods?

How much must we add for moral insurance against loss?

Character is of vital importance in small concerns; of vital importance
in concerns doing a large business on small capital, and it becomes of less
importance as we progress into the field of corporations.

In direct contrast to this contention are the views of Mr. Ernest
Reckitt, as expressed in an address delivered before an organization
of bank clerks. After naming the factors to be considered by the
banker before extending credit, he said :

You will note that in enumerating these factors I place first, and pur-
posely so, "The Man Himself," and I believe I am correct in stating that
bankers are now placing more stress upon this point than ever before. The
man of good character and intelligence, who is full of energy and perteverance,
will not find it difficult to obtain a reasonable line of credit with his bankers,
while the man who is deficient in those qualities, whatever his reputed wealth
may be, will be looked upon with suspicion. It therefore behooves you to
become students of human character as well as students of banking, if you are
to fill the highest positions within your reach.

These comments may be out of the range proposed by this paper, but I
feel I cannot leave this topic without giving you an illustration of the point I
wish to emphasize, namely: That it is the character of the man, or men, in a
business, which must be first considered . before the banker makes a loan.
Some time ago, in a certain city, there was a large corporation reputed to be
very wealthy, whose balance-sheets were beautiful to behold. Their business
being large, they were borrowers of some of the largest banking institutions
of their city. Apparently without any warning the corporation was declared
bankrupt and went into the hands of a receiver, Later, investigation showed
that the balance-sheet was misleading; some people might have called it a
worse name, for the assets had been overstated and the liabilities understated.
I happened to be in that city at the time of this failure, and, meeting a director
of one of the banks with whom I was well acquainted, I inquired if his bank
had been caught. "No," said he, "they did try and open an account with us
some time ago with the object of becoming borrowers, but we turned them
down." I asked him what reasons he and his colleagues on the directorate



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4 THE CREDIT ORGANIZATION

had for such action at a time when this corporation was supposed to be so
prosperous. "Well," said my friend, "some time ago it came to my knowl-
edge that this corporation paid no water tax and that its personal property
tax was a mere bagatelle to what it should have been, and I figured out that
the oflBcers of a corporation that would be guilty of petty bribery would not
be good customers for our bank."

So it will be seen that a knowledge of the business morals of the men
in your community and a high ideal, on your part, of what constitutes good
business morals is a most essential quality in the make-up of a banker, and
that it was these factors that enabled the bank of which my friend was a
director to escape what otherwise would have been a bad debt.

Financial Statements. Without attempting to decide the rela-
tive importance of the two principal factors, it can safely be stated
that one of the first steps to be taken by the credit man is to secure a
financial statement from the applicant. And the character of the
statement may serve as a guide in determining the character of the
man with whom he. has to deal.

Most business men are willing to comply with any reasonable
request relative to their financial standing, when applying for credit.
Until recently, the average man had objected to giving out such
statements, except to his bankers, but with the more universal de-
mands for such statements has come a change, and now a statement
of some sort is almost always obtainable.

The form of statements used by banks differ somewhat from
that used by manufacturers and jobbers, and, while it differs slightly
as between banks, and also as to whether the borrower is an individ-
ual, a partnership, or a corporation, in general the statement re-
quired follows the lines of the form shown in Fig. 1. This statement
is signed, in the name of the firm by a member, in the case of a part-
nership; and in the name of the company by one of its officers, in the
case of a corporation. A statement in the same form gives all of the
information of a financial nature required by the manufacturer or
merchant.

Analysis of the Statement. Of equal importance with the
statement is the ability to read it — to correctly interpret its real
meaning. This calls for a careful analysis of the several items of
which it is composed. To make a correct analysis means that the
credit man must have a general knowledge of the business in which
the one asking for credit is engaged. The banker must know, for
example, whether the season is one in which more capital is likely



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THE CREDIT ORGANIZATION 5

to be needed in the trade of the borrower, or one in which he should
be liquidating his indebtedness.

So important is this phase of the question that some of the larger
banks have adopted the plan of assigning requests for loans in dif-











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ferent businesses to diflFerent officers. One man will investigate
real estate securities, one, applications from board of trade houses,
another handles applications from packing houses, others look after



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6 THE CREDIT ORGANIZATION

the steely huilding, jobbing, apd manufacturing enterprises. Each
man is a specialist, making a special study of conditions in the busi-
ness to which he is assigned.

In making an analysis of a statement, each item must be taken
up separately and considered with respect to its relationship to other
items, and its bearing on the statement as a whole.

Cash on Hand, The cash on hand should be consistent with
the needs of the business, and, if listed separately, the cash in office
should never be a large sum. There is seldom any good reason why
cash should not be deposited daily. The banker will find it necessary
to carefully scrutinize the amount in bank, particularly if the borrower
claims to deposit in no other bank.

Merchandise. This item is always a somewhat uncertain quan-
tity; often an estimate pure and simple, and the debtor is unlikely
to make his estimate too low. In the absence of provable figures,
it is necessary for the credit man to apply his knowledge of the busi-
ness. Is the stock larger than should be required? Is it too low to
enable the debtor to keep pace with his competitors? Or, if a manu-
facturing business, how much is raw material and how much finished
goods?

One of the important factors in making an analysis of this item
is a knowledge of the accounting methods of the debtor. Does he
keep stock records, or if not, is his stock well cared for and stored in
a manner to permit of a reasonably accurate estimate? On the
latter point, reports of the observation of salesmen, referred to later
on, have an important bearing.

BiUs Receivable, On the statement form shown, this item is
divided as to notes, secured and unsecured, not due and past due.
To state that the amount of bills receivable is so much is one thing,
to state the amount not due, is quite another. Any considerable
amount of unsecured and past due paper indicates lax methods in
the debtor's own credit department.

Accounts Receivable, This item is divided as to accounts less
than 60 days past due and accounts more than .60 days past due.
These items require the same close scrutiny as bills receivable.

The two items — bills and accounts receivable — should bear a
reasonably constant ratio to the amount of sales. Any unusual
increase in the percentage of book debts to sales calls for careful



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THE CREDIT ORGANIZATION 7

scrutiny, and leads^ to one of three conclusions: that trade conditions^
are bad, that the credit department has been lax, or that the amount
is overstated.

The first of these conclusions is supported or rejected by the
credit man's knowledge of financial conditions in general, and of con-
ditions in the particular trade of the debtor. During a financial
panic, or in a season following crop failures, it is to be expected that
book debts will be greater in amount than in ordinary times. In
the event of the third conclusion, it is time for a careful investigation.
As a rule, the investigation will be productive of best results if an
examination of the books by a public accountant is included.

Due from Stockholders. This is an item which must be care-
fully studied. Who are the stockholders or partners who own the
firm, and for what? What is their financial responsibility?

Sometimes, stockholders whose entire fortunes are invested in a
corporation are found to be debtors to the same corporation for
borrowed money.

DiLc for Merchandise. This item is divided as to accounts not
due and past due. It should be carefully compared with the same
item in* statements furnished in the past. An increase may or may
not be due to natural causes such as the requirements of the trade
during a particular season.

Due for Borrowed Money. Any increase in this item should be
offset by an increase in assets, or a decrease in other liabilities.

Liability as Surety. This is an item of more importance than is
generally accorded to it. True, the liability is a contingent one,
but many a man has been forced into bankruptcy by the failure of
another, for whom he had become endorser.

Another item which should in the opinion of the writer appear
among the liabilities, is discounted paper. When a man discounts the
paper of a customer, received in the course of business, he assumes
a liability for the amount, if not paid at maturity. True, the liability
is contingent, but a liability nevertheless. The extent of the lia-
bility depends on the prosperity of his own customers and the care
which he has exercised in accepting their paper.

Information for Retailers. The information available for the
retailer is of a very different class. Here, the factor, the man himself,
plays a more important part. The retailer is obliged to depend more



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8 THE CREDIT ORGANIZATION


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Online LibraryIll.) American School (LansingCyclopedia of commerce, accountancy, business administration ... [microform] → online text (page 10 of 27)