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   Chapter 40 COMMERCIAL CREDITS AND MERCANTILE AGENCIES

Up To Date Business By Various Characters: 12969

Updated: 2017-12-06 00:03


HOW THE WORLD'S TRADE IS LARGELY TRANSACTED UPON CREDIT

It is estimated that about ninety per cent. of the world's trade is transacted upon credit. And in no country of the world are commercial credits so freely granted as in the United States. This is a land of seemingly unlimited faith in humanity, and yet a land in which hazardous speculation, extravagance, and bankruptcy have often prevailed. Statistics show that about ninety-five per cent. of our merchants "fail to succeed," and yet no other country can boast of such wealth, industrial energy, and generous confidence in business integrity. While credit is not money, in that it cannot settle a debt, it must be considered a very powerful agent in the creation of capital. Credit is another name for trust. The business world bases its confidence or trust in men upon their character and resources. And the extent of this trust becomes the only limitation of the business man's purchasing power. He who can show conclusively the ability and disposition to fulfil obligations, has it within his power to command the capital or merchandise of others. Credit is one of the fruits of a higher civilisation and a settled condition of a country's business. It bespeaks a quality of government, too, that is not to be depreciated. The nations that are most successfully and equitably governed and show the most stable conditions of currency also show us the most extensive and efficient credit systems. It is abundantly true that these same nations have on many occasions passed through periods of great distress from failures widespread and panics severe, but it must also be borne in mind that these very bankruptcies are more often the abuse of prosperity than the product of adversity. Over-confidence in men and things has resulted in speculation and precipitated bankruptcy. And if it be urged that to the undue expansion of credit is traceable the greater number of our financial disasters, it may be said with still greater force that all our impetus to industrial achievement has been and still is dependent upon the generous exercise of credit. The construction of our railroads and canals, the operation of our mines, the improvement of our great farm areas, the building of our towns and cities, and the development of our extensive manufacturing interests are all the result of the trust reposed in men and the industrial interests they represent.

THE IMPORTANCE OF A HIGH STANDARD OF CREDIT TO BUSINESS MEN

Reticence on the part of business men respecting their financial position may seriously impair their credit. It is universally regarded by the intelligent business man to be good policy to make known his condition. A refusal to do so throws a suspicion and doubt upon his financial ability, and at some future time when confidence in his integrity may be essential to the very life of his business, he may find the necessary help unobtainable. An applicant for credit should be willing to prove himself worthy of it. But the keen competition among merchants eager for sales often enables the buyer to obtain credit without the necessity of giving very much evidence as to his commercial standing. Since some risks must be taken merchants frequently conclude to accept an account because of its possible acceptance by some competitor. If business is to be had risks must be taken, is the theory.

When former customers apply for credit the merchant is guided by the record made in previous dealings. A business man's ledger is a very valuable history of credits. It is his compass in a sea of doubt. If upon the inspection of an old account it be discovered that in former years the customer paid cash and discounted his bills, and that later his method of payment was by promissory notes, and that on several occasions he asked for special favours, such as dating bills ahead or the privilege of renewal of notes, one is able to read a certain unmistakable sign of degeneracy in the customer's credit. New orders from such a customer will bear scrutiny; and a closer attention to the present condition of the account may save the firm from some bad debts.

While it is possible to-day to determine the average losses from bad debts in the various lines of business, individual risks cannot be accepted on that basis. Each requires special study. If an applying customer paints his financial condition in roseate colours, let him be willing to reduce his statement to writing, and when his signature is affixed his statement is much more reliable, because he knows of the impending liability of fraud if he has misrepresented. Men averse to transforming an oral statement to writing have discredited themselves immediately. Men who mean to be honest may be optimistic in picturing prospects and be inclined to set an unreasonable value upon their property and extent of business. It may be easier to tell the absolute truth about one's liabilities, because they are such persistently real things; but assets have elastic qualities in many men's minds and seem capable of any extension in an emergency. Buyers who impress themselves most favourably upon the business house are frank in their statements. The explicit, candid man of few words will merit consideration. The cringing or pleading kind predisposes one unfavourably. Stephen Girard said of one who in tears asked for a loan: "The man who cries when he comes to borrow will cry when he comes to pay."

To determine the right of a buyer to credit and the safe limit of credit to be extended to him is the seller's serious problem. It is customary to request references in order to discover how other firms regard the applicant's credit. But these references may be cautious of reply. A selfish desire to retain the customer for themselves, or the higher motive of a desire to be true to the interests of both the inquirer and the customer may produce dubious or very incomplete reports. If a bank be among the references one does not place too much stress upon a very favourable reply from it, because a merchant usually learns the lesson of expediency in making a friend of his banker. And, moreover, one endeavours to reveal only the best side of his business affairs to the bank. Favourable replies from several firms showing a uniform line of credit go a great way toward reaching a safe conclusion. But in these days of vast and multifarious interests there has developed, as a result of this desire for adequate knowledge respectin

g men's credit, an agency for the exclusive purpose of arriving at definite and reliable evidence upon financial matters; and after years of experience men have learned to depend upon these mercantile agencies as the most valuable and trustworthy assistants.

MERCANTILE AGENCIES

Mercantile agencies had their origin in the system adopted by several prominent firms of keeping on record all the information obtainable relating to their customers. In 1841 "The Mercantile Agency of New York City" began its history, and was the forerunner of the present great agencies whose record books of credits and ratings include the names of all the business houses and corporations in this country and Canada. The pioneer institution of this character in the United States was the one bearing at present the name of "R. G. Dun & Co.," an outgrowth of "The Mercantile Agency of New York City." Since 1860 it has borne the name of Mr. Dun, who was formerly a partner with Mr. Douglass when the agency was known as "B. Douglass & Co." Another popular and influential concern is the one known as "The Bradstreet Company," familiarly spoken of as "Bradstreet's." Besides these two leaders there are many others, whose reports on credits are limited to particular lines of trade. The larger agencies soon found it necessary to establish branches in all the business sections of the country. A particular field of investigation is allotted to each branch, and an interchange of information is in constant progress.

A mercantile agency inquiry form.

To be a recipient of the valuable information afforded by these agencies business men, by paying an annual fee, are enrolled as subscribers and furnished with books of ratings, as they are called. Besides this book special type-written reports with elaborate details respecting a firm's credit are sent upon the request of the subscriber. The volume of information recorded in these agencies concerning any one's credit is obtained through the effort of officials of the agencies known as reporters. These men of experience, integrity, and discernment are seekers after truths. Usually each reporter has a distinct line of trade assigned him for research and investigation. This brings him into intimate acquaintanceship with every trader in his particular field. He is a constant solicitor of the banker and merchant for facts. His business is not merely to gather information respecting the resources of business men, but to investigate rumours that in themselves may be detrimental to one's credit, and to disprove them where possible and sustain and support the credit of a house. Too often it is supposed that the reporter is seeking evidences of weakness when in reality his business is most frequently that of discovering elements of strength. Information is freely given him as he interviews men whose businesses and experiences are the depositories for a wealth of credit information. He soon becomes a confidant of the merchant himself, who not only tells him all he knows about the customers and their accounts upon his books, but his own business affairs as well. Indeed, the relation becomes so very reciprocal that the reporter often furnishes information to the merchant in the interview on some matter of credit of pressing notice. In this way a corroboration of facts or the denial of a rumour may be effected. He inspects the books of the offices of public record to find the evidence of mortgages, judgments, and transfers of property, and have the same recorded on the agency's books. It is the reporter who finally has gathered the information that determines a firm's ability to have and to hold a line of credit.

It is essential to the life of the agency that its reports be honest and free from any element of doubt. The public confidence in the reliability of the reports will determine the prosperity of the company. Perhaps at first glance it would seem as if the system of reporting financial information was a serious discrimination against the men of smaller capital and in favour of the wealthy. But mere capital is not the only element entering into an estimate of one's ability to pay. Character and reputation are powerful forces in assisting a merchant in determining credit. An agency discloses facts and not opinions. And it is within the range of possibility of any one to create and maintain his credit. Capital may grow gradually but credit is sometimes established or destroyed by a single act.

The facts obtained by mercantile agencies are not public property. They are given in confidence and for the sole purpose of aiding the business with respect to the propriety of granting credit. The private reports are for the eyes of the interested inquirer and not the curious. Whenever some particular item of interest finds its way to an agency that would affect one's credit seriously, such as the giving of chattel mortgage or the confession of a judgment or the sale and transfer of property, it is customary to send unsolicited a special report of these facts to all subscribers on the agency's books who have ever at any time made inquiry concerning the firm. One might expect that these agencies expose themselves to risk of prosecution for libel, but since no malice is ever intended in any report circulated, and since it rarely occurs that damaging reports are sent out by these institutions unless abundantly confirmed, there is little opportunity for litigation of this sort.

Another field of usefulness of the mercantile agency is in the exposure of the absconding debtor and his whereabouts, and also the dishonest trader who in arranging a fraudulent failure may be striving to open many new accounts. The unusual demands for reports respecting such a one lead to careful investigation. Instead of a restrictive tendency a mercantile agency promotes the expansion of credit and yet permits of proper conservatism. It opens to the trader as a market for his merchandise every new and trustworthy account. It curbs speculation, stimulates diligence in business, habituates punctuality, and develops character. When we remember that the present annual internal commerce of our country is estimated at about 800,000,000 tons of merchandise carried an average distance of 120 miles, and that this volume of trade is worth over $10,000,000,000, we are forced to admit that the unique system of these credit agencies has done much to further and make possible this commercial prosperity.

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