Ill.) American School (Lansing.

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

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largely on his personal knowledge and the general reputation of his
customer.

The city retailer, for instance, needs to know where the man
works, his salary, his reputation for paying others — ^his landlord,
grocer, and butcher — and something about his personal habits and
general reputation.

How long has he been in his present position?

Does he make frequent changes?

Does he own a home?

What rent does he pay?

Any other wage earner in the family?

These are some of the questions, the answers to which will
assist in determining the credit risk.

The country retailer needs other information about his cus-
tomers. As a rule, he can answer all of the questions asked by the
city retailer in respect to his own customers. He is more intimately
acquainted with his customers; he has a better opportunity to learn
their characteristics and habits, than the city retailer. The country
retailer has another advantage, in that a closer bond of friendship
exists between him and his neighbor merchants. The interests of
city merchants are no less common, but distances separating them
make an interchange of views more diflScult.

About his country customers — the farmers — the retailer re-
quires still different information. Besides full information about
the real estate owned, and mortgages given, he needs to know some-
thing about the man himself.

Does he market his crops early, or is he a speculator — always
holding for possible higher prices?

Is the farm well kept up?

Are the implements properly housed, or left outside at the
mercy of the elements?

Does he keep his live stock in good condition, and how much
does he feed for market?

Is he thrifty or shiftless?

Only by personal contact can these things be learned. The
country merchant who keeps in closest touch with his farmer cus-
tomers — sympathizing with them in their misfortunes and rejoicing
in their prosperity — ^is usually the most successful. As one country



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THE CREDIT ORGANIZATION 9

merchant puts it, he must act as a general advisor, and help them
bear their very aches and pains.

SOURCES OF INFORMATION

The usual sources of credit information are the mercantile
agencies, reports from local correspondents, reports from traveling
salesmen, and merchants' associations or credit reporting agencies.

Mercantile Agencies. Of these sources, perhaps the best known
and most widely used by manufacturers and jobbers, is the mercantile
agency. The mercantile agency is the outgrowth of a necessity.
About the year 1840, a few New York merchants formed an associa-
tion for the interchange of credit information. Later, thLs became a
business conducted by individuals who charged a small fee for written
reports.

The business has grown to such proportions that a single agency
requires about 200 offices, located in the principal cities throughout
the world. In the territory of each oflSce, which is presided over by
a manager, correspondents are employed, and at certain seasons
country reporters traverse every district, gathering data to be for-
warded to the branch oflBces. Every court house in the United
States has its paid correspondent, who promptly reports any action —
as the filing of suits, recording of mortgages, or entering of judg-
ments — that might affect the credit risk of any business man in the
country.

Some idea of the magnitude of the business, and the task of
gathering statistics, can be gained when it is considered that the books
of a single agency contain the names and ratings of about 1,500,000
persons. About each of these individuals, the latest data collected
by the reporters is on file in the various branch offices.

Delays in securing information is one of the most common com-
plaints against the agency service, but the service is probably as
prompt as can be expected Suppose a request for a special report
is received this morning. First, the information on file is copied,
and proofread to guard against errors This is sent to the subscriber,
but if it is not of a recent date he is advised that further information
will be forwarded. Or, there may be no data on file, in which event a
reporter b assigned to the case. He may be obliged to make several
calls before finding his man, and when found, the man may be reluc-



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10 THE CREDIT ORGAXIZATIOX

tant about giving information. If real estate is listed, the real estate
man must look up the title and mortgage records. Thus, two or three
days may elapse before it is possible to furnish the report.

Some complaint is heard that reports furnished by the agencies
are not sufficiently specific — ^which is probably true in many cases —
but it is often quite difficult to obtain information on which positive
statements can be based. On the whole, the service of the agencies
is of very great value to the subscriber. As to its defects, the best
way to overcome them is for the wholesaler to establish a credit
organization of his own, to supplement the service of the agency.

Local Correspondents. If the matter is properly handled, much
valuable information can be secured from local correspondents. The
banker, or a local attorney, is in a position to make confidential
reports on local merchants. In fact, the agencies secure niuch of
their information from this very source.

But, in establishing local correspondents, the exercise of good
judgment is necessary. The local attorney should not be expected
to furnish information without pay, or to go into details that would,
not be asked of an agency charging $100.00 a year for the service.

An attorney has favored us with a blank sent out by one whole-
sale house, on which he is asked to make a complete report. Among
other information requested, the blank calls for the value of mer-
chandise, realty, cash, total worth, liabilities, and numerous references
to his character, habits, etc. Following this statement is the question,
"if not paid, can you collect?*'

Here is a very complete statement, to compile which would
require several hours' research, but without a single suggestion that
the attorney will receive pay. An^l then he is asked if he can collect,
after the house has exhausted all usual methods.

A certain other concern, when opening new territory, writes to
a local attorney telling him they are entering the field; that they will
require information from time to time, for which they expect to pay
a reasonable fee; and ask if he is in a position to represent them in this
capacity. At the same time the attorney is told that he will receive
for collection any accounts on which such action may be necessary.

WTien a special report is desired, the blank shown in Fig. 2 is
sent. The local correspondent is expected to give as full information
as possible, for which he is paid promptly.



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THE CREDIT ORGANIZATION



11



In this way, excellent results are secured. There is some ques-
tion about the advisability of, leaving the amount of the fee to the
correspondent. A better plan is to have the fee to be paid for all
ordinary reports decided in advance, extra compensation to be
allowed in special cases. The average country attorney will furnish an
intelligent report for two dollars — a low price for reliable information.



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hitf for your sorw*'cos.



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Fig. 2. Local Correspondents' Report Blank

Traveling Salesmen. Certain information about the business and
general reputation of a customer can best be obtained through the
salesmen of the house. They are the men who come in direct con-
tact with the customers, acquiring an intimate knowledge of each.

The average salesman objects to making out lengthy reports,
but if approached in the right spirit, will give the credit man the
benefit of his observations. The salesman's judgment is scarcely to
be relied upon in the matter of the financial standing of a customer
— his anxiety to sell goods makes him too optimistic — but he is
probably the best judge of the character and business ability of a man
on whom he b calling regularly.



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12 THE CREDIT ORGANIZATION

Frequently a spirit of antagonism to the credit department exists
among the salesmen. This condition indicates a decided lack of
that cooperation so necessary to the success of any business. The
credit man who possesses tact can overcome this antagonism, if he
will but drop his cold-blooded attitude and meet the salesmen on a
friendly basis. If he will cultivate their friendship, the salesmen
will respond with information of great value to him.

Naturally the information secured from a salesman differs from
that received from other sources. About the class of information
that can be expected b provided in the blank shown in Fig. 3. This
can be printed on a standard size card.



/i^mQ - 3otQ5m9n _



Oi/mr or uff<foAztocAe€f ? WQf/ tf/spfoi/ecf.^-

CompQf-Qnf- c/€rM3 / /fou/ m^ny /



Location Qood F At-f^nhi/Q to bu^ino^^?

GQnero/ rtpufst/on^ Dr/nh / G&mt/e .^ ^

Do you consider him competent F a Prosporous?-



Fig. 3. Salesman's Customer's Report Blank

Retail Credit Reporting Agencies. In many cities, merchants have
formed associations for the exchange of ledger experiences. Some of
these associations have been very successful, but the chief difficulty
has been in sustaining interest and in securing the necessary informa-
tion. This lack of interest seems to be general in mutual associations
— every man seems afraid that he will give more than he receives.



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THE CREDIT ORGANIZATION 13

Out of the merchants' association has grown the retail crecHt
reporting agency — the exchange of information being conducted as
a private enterprise. Tlie expression, exchange of iuformaiiou, is
used advisetlly, for the service of these agencies consists mostly of
reports giving the experiences of other merchants. To quote froni the
prospectus of one of these concerns :

Our company does for the retailer what Bradstreet and Dun do for the
wholesale dealer. We arrive at the result, however, in a different way. We
give accurate information as to how people pay their bills, regardless of their
financial standing.

This information we get from merchants and professional men by means
of a thorough canvass of our entire territory. We visit all people doing busi-
ness, whether our subscribers or not, and in this way secure the names of all
consumers in business or private life.

We arc thus able to tell the grocer how Mr. B. pays his butcher, his tailor,
his hatter, his doctor, and every other trade or profession he deals with, and
each of these in turn is furnished with the same kind of information from the
grocer; thus we establish the exact credit standing of Mr. B. with the entire
trade of the city.

Acting upon information thus furnished, every merchant or professional
man in the city knows from the most reliable and trustworthy source to whom
he can safely give credit and whom he should refuse.

For example, we here give a si)ecimen rating with an explanation of the
same.

"John Doe, carpenter, 187 Broad St., bG 2F."

This rating indicates that five different merchants have found by ex-
perience that John Doe is a prompt paying credit customer, and two other
merchants have found him somewhat slow, but regard him reliable and trust-
worthy.

Next example:

"John A. Doe, lawyer. 210 North Second St., 4/> 3B."

This rating indicates that four different merchants have found him too
slow in paying to be a desirable credit customer, and three other merchants
have found him bad pay and im worthy of credit confidence.

Other sources of information, which come under the head of
exchanges of ledger experiences, are the credit men\s associations.
These associations, through clearing houses, exchange information
about their customers, thus supplying the wholesaler with the same
class of information as described above for retailers.

One credit man relates the following incident, illustrating the
value of the association clearing house. On one of the reports
furnished by the clearing house, he noticed that another merchant had
refused credit to one of his own customers. Investigation develoj>ed
the fact that this particular customer's locality had suffered severely



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14 THE CREDIT ORGANIZATION

from the destruction of crops by a cyclone. Now it happened that this
credit man's house was about to fill a large order from this very cus-
tomer. The shipment was held up, and the credit man promptly
wrote to the merchant expressing regret that his community had
suffered so severely, and asking if his house could be of any assistance
to him. In closing the letter, the suggestion was made that since
collections were likely to \ye slow with the merchant, they would
allow him to cut down his order.

The letter had the desired effect. Instead of turning him down
the merchant was made to feel fhat he had friends in that house, and
it is probable that he continued to be one of their valued customers.

RECORDING CREDIT INFORMATION

Scattered information is of little value. A credit man may avail
himself of all sources of credit information, but unless he has it filed
and recorded where he can put his hand on it, he will find it of little
assistance in determining credit risks. He cannot "keep it in his
head" and get the best results.

There are credit men who profess to rely largely on intuition,
but the hard-headed man — the one who makes the fewest mistakes —
relies on his facts and figures. He uses judgment, but first wants
the facts marshaled in logical order.

Filing. The method of filing best adapted to the needs of a
given concern depends on the size of the business, number of cus-
tomers, method of collecting information, and the quantity of data
kept on file. In a small business, depending almost entirely on the
ratings of the mercantile agencies, with an occasional special report,
no special filing system is necessary. The few reports received can
be filed with the regular correspondence. But in a well-organized
credit department, handling credit information about a large number
of customers, the question of filing is of importance.

In the first place, all reports should be kept in one place; special
agency reports, reports of traveling salesmen, local correspondents,
and the credit clearing house, with financial statements furnished by
the customer, should be filed together. This means that they should
be separated from the general correspondence; if filed with the
correspondence, they are sure to become scattered when the files are
transferred.



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THE CREDIT ORGANIZATION



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Without xjiiestion, the most satisfactory method of filing is to
use the vertical file, with a folder for each customer. For the average
business, an alphabetical index is most satisfactory, but for a very
large business, with customers throughout the country, it is best to
subdivide the file by states and towns, arranging the folders of cus-
tomers in each town alphabetically.

Credit reports are not, as a rule, of sufficient bulk to require the
large files and folders used for correspondence. A file of the same



STATt



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FIRM MtKBtRS



BU9\H£.3S



"T RAT!

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RAnne \ RtFtHtwcts

BRADSTREtT



TtRMa AMD DI3COUHT \ H\eHE,ST CREDIT



BUYS ALSO OF



COLLECT



I



MAHHtR OF PAV\HQ



i



Fig. 4. Front of Credit Information Folder

style, to accommodate folders about 7X9 inches in size, is more
compact, and has been found very satisfactory for this purpose.

A plain folder, such as is used for correspondence, will answer
the purpose, or a special form may be substituted. An excellent
example of the special folder is shown in Fig. 4. The special feature
of this folder is that on the flap which folds over the front provision
is made for a transcript of credit information. The back of this
folder is printed as shown in Fig. 5. This form is used for a record
of purchases, and covers a period of seven years.

Card Transcripts. For convenience, it is best to make a brief
transcript of the credit information. This transcript should embody



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THE CREDIT ORGANIZATION



the essential facts which naturally influence the credit risk, and should
Ijc in such form that it can l)e referred to very readily.

As explained above, this transcript can be made on the credit
information folder, but the more usual plan is to use a card. For
each customer a card such as shown in Fig is used. Tlie special
feature of this card is that l>oth the capital and creilit ratings are
listed. Such a card saves the time that would be required to refer to



Yoar


1909


I9IO


1911


1912


1913


1914.


1915


J^n.
















Fab.
















Mar.
















Apr.
















May.
















Juno.
















Julu.
















Auq.
















S<3pt.
















Oct.
















Notf.
















Dec.
















Rcmarhs















Fig. 5. Back of Credit Information F(rfder

the agency books, and affords a comparison of the ratings given by the
agencies on different dates. Both the book ratings and special
reports are entered on this card.

A card which provides for reports, other than those furnished
by the agencies, is shown in Fig. 7. A line for the folder number
will be noted at the top, a numerical system of filing the folders
being used. Although the numerical system is frequently found,
it has no practical advantages, and the alphabetical system b to be
preferred.



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THE CREDIT ORGANIZATION



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The form shown in Fig. 8 provides for more general information
about the business — such information as would be gathered from the
reports of salesmen and local correspondents. It will be noted, also,



Nama


Catalogue


Tou/n




Cr. Urn f Stat© 5usinas5


Dekta


Dun
Cap Rating


Dun
Cr Rating


Bond
Guarantoa


Dradstraat
CapRating


Bradstrcaf
Cr. Rating


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Quarant««


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Brad.






















































































































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r


















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l...











Fig. 6. Credit Agency Report Card

that the financial information refers more especially to tlie firm mem-
bers. This card is used to supplement the books of the agencies.



Folder No. Limit of Credit •


Name


Address




' MtRcANTiLt AQtNCY REPORT

O&te Dun Net Worth Habits


Data Bradstrcat Net Worth Habits


IMFORMATION FROM OTMtR SOURCES


b\^ Whom Reported


Net Worth


Worfhu of Credit






































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Fig. 7. (leneral (^redlt Report (.'an!

The card shown in Fig. 9 gives a complete history of reports
asked and received, and of credits granted. This form is used in a



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THE CREDIT ORGANIZATION



business in which the purchases of a customer are infrequent, and in-
volve considerable sums. The credit risk is considered each time
an order is received.

The card shown in Fig. 10 is used by a retailer. As is usual in
retail credits, the information provided for in this form refers to past
experiences and the general reputation of the customer.



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Apa A^rS. Risa/Esf. iJicumb^r^d WorfJi Sfiiftdmp Habifs



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PresQ/ff ^fock



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Fig. 8. General Credit Information Card

Like the folders used for filing credit statements and reports,
credit cards should be indexed alphabetically, subdivided by states
and towns when necessary. Filed in this manner, each card is
accessible, and can be referred to quickly. An advantage of cards
for this and many other purposes is that obsolete matter is quickly
eliminated, and new names are added at will without disturbing the
general arrangement of the records.

BRANCH HOUSE CREDITS

Many businesses are conducted through branch houses, each in
charge of a local manager. Customers are supplied by the branches,



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THE CREDIT ORGANIZATION



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and it is customary to have each branch house collect its own accounts.
Weekly reports of the business transacted, includmg sales, collections,
and stock on hand, are made bv each branch to the home office.



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Fig. 9. Card Record of -Reports Received and CYedIt Granted

Duplicate accounts, made up from these reports, enable the home
office to Keep in as close touch with each account as though collections
were made ditect.



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LQdg^r PayQ


A<A/ra^


Emp/oy^cf ^f


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Fig. 10. Credit Card for Retailer's Use

Large concerns, operating many branches, have found by ex-
perience that it is best to pass on all local applications for credit at



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THE CREDIT ORGANIZATION



the home oflSee. This work is handled by a division of the credit
organization, known as the branch hxmse credit departntejit

TTie forms shown and the system described herein were designed
for the use of an oil company, and are very similar to those used by
the large packing companies. WTien a dealer wishes to secure credit
at a branch, the form shown in Fig. II is filled out in duplicate and
signed by the local manager. The original is forwarded to the home
office, while the duplicate is filed in the branch office, under the name
of the applicant. Folders are used for this purpose.



0m9/fiAL APPLIC AT/ON FOR CRED/T



Great W£^re.Rj^ 0/l Cq-



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Dofu Dun Brad



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Terms



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Bus//tess



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Ansu/or Qochquesfion ifpossibh Wrtfo. xifi -spocQ if t/ou do no/- know



/•Does /re own r99/Qst>9t9?^
2 What is us/uQ of sfocA?.



sAny mortage on rQS/QSf&fQ.^^
Any chetti^ morf^Qs?-



J¥het is //j tr^AfQ.^.

-Amount ou/ning on0^

Jn u//iosQ fauorl.

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5 Amount of cttstt/Q mortogQS /

6 Whst ^amount u//// b^ required 4

yWh&f is s/9nd/n^ in community }^

)tlfit/i u/tiot bank do t/tzy frarr^ocf dc/sin^ss ?-
sWtfat torms and //m/f do you ^i/ypesfF



^Amount of RE.Mortay^tlt^



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Fig. 11. Branch Office Credit AppHcation

Only the lower half of this form is filled in at the branch office.
The rating, credit Umit, and terms are entered when a reply is received
from the home office.

When the application is received at fhe home office, the files are
consulted for any information that may have l)een received previously,
reports are asked from the agencies, and the decision made. The
decision is made known to the branch house on the form shown in
Fig. 12.



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THE CREDIT ORGANIZATION


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Online LibraryIll.) American School (LansingCyclopedia of commerce, accountancy, business administration ... [microform] → online text (page 11 of 27)