esteem it a favor if you will kindly explain the merits of these
instruments and give---- ----an opportunity to thoroughly examine them.
Respectfully,
At the time of referring the inquiry to the dealer, the blank shown in
Fig. 37 is filled in and mailed to the salesman in whose territory the
dealer is located. The lower half of the blank is for the salesman's
report to the house.
[Illustration: Fig. 37. Notice of Inquiry Sent to Salesman, with Blank
for His Report]
=Salesman's Expense Accounts.= Detailed expense accounts should be
mailed to the house weekly. A conveniently arranged form, with columns,
for regular expense items such as _hotel_, _R. R. fare_, _livery_,
etc., will greatly assist the salesman in making up his accounts. Such
a form is shown in Fig. 38. This is a card 3"×5" 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, summaries
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, the sales of one man with those of another, the sales in
different territories, the sales of different departments, the sales by
mail with those of personal salesmen.
[Illustration: Fig. 38. Traveler's Weekly Statement of Expenses]
=Daily Sales Records.= The daily record of sales should show the sales
of each department, the source of the sales, and the proportion 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.
[Illustration: Fig. 39. Daily Tabulation of Sales by Departments]
[Illustration: Fig. 40. Monthly Recapitulation of Daily Sales Reports]
[Illustration: EXECUTIVE BUILDING OF THE LEWIS PUBLISHING CO.,
UNIVERSITY CITY, ST. LOUIS, MO.]
=Monthly Sales Records.= Fig. 40 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.
[Illustration: Fig. 41. Daily and Monthly Record of a Salesman]
These daily and monthly summaries provide for a comparison of wholesale
with retail, mail order with personal salesmen, and departments.
If there is a gain in one department and a loss in another, or a
fluctuation 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 be 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 be filed alphabetically by name of the salesman, and
divided according to states. They will then show the sales of each man
and in each territory.
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.
[Illustration: Fig. 42. Record of Sales by an Agent or Dealer]
[Illustration: THE CREDIT DEPARTMENT OF THE FIRST NATIONAL BANK,
CHICAGO, ILL.]
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, producing,
and selling, but the final conservator of the business is the credit
man; others may be profit makers, but he is the _profit 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 organization.
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 man must be firm, and, while
availing himself of every reliable source of information, 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 obscure 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 earthquake 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 office, 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 considered 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 contribution to
the literature of credits, Mr. E. St. Elmo Lewis takes the stand that
the man--his character--should be considered secondary. 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 ease of
solution.
The question of the intention or inclination to pay must always be
shrouded in the nebulæ of psychological theory.
What is the applicant worth? is the crucial 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
purposely 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 perseverance, 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
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 knowledge 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 officers 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 relative
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 demands 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 individual,
a partnership, or a corporation, in general the statement required
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
partnership; 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 to be needed in the
trade of the borrower, or one in which he should be liquidating his
indebtedness.
[Illustration: Fig. 1. Customer's Financial Statement]
So important is this phase of the question that some of the larger
banks have adopted the plan of assigning requests for loans in
different businesses to different officers. One man will investigate
real estate securities, one, applications from board of trade houses,
another handles applications from packing houses, others look after
the steel, building, jobbing, and manufacturing enterprises. Each man
is a specialist, making a special study of conditions in the business
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 quantity; 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 business. 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 manufacturing 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.
_Bills 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 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 conditions
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 carefully
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.
_Due 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 liability
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 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 customers. 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
difficult.
About his country customers--the farmers--the retailer requires still
different information. Besides full information about the real estate
owned, and mortgages given, he needs to know something 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
customers--sympathizing with them in their misfortunes and rejoicing
in their prosperity--is usually the most successful. As one country
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 association for
the interchange of credit information. Later, this 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 office, which is presided over by
a manager, correspondents are employed, and at certain seasons country
reporters traverse every district, gathering data to be forwarded to
the branch offices. 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 judgments--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 complaints
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
is assigned to the case. He may be obliged to make several calls before
finding his man, and when found, the man may be reluctant 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.