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 much 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 wholesale
house, on which he is asked to make a complete report. Among other
information requested, the blank calls for the value of merchandise,
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. And 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.
When 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.
In this way, excellent results are secured. There is some question
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.
[Illustration: 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 contact 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 is calling
regularly.
Frequently a spirit of antagonism to the credit department exists
among the salesmen. This condition indicates a decided lack of that
coöperation 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 is provided in the blank shown in Fig. 3. This can be printed
on a standard size card.
[Illustration: 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
information. This lack of interest seems to be general in mutual
associations--every man seems afraid that he will give more than he
receives.
[Illustration: ADMINISTRATION BUILDING AT THE PLANT OF STUDEBAKER BROS.
MANUFACTURING CO., SOUTH BEND, IND.]
Out of the merchants' association has grown the retail credit
reporting agency--the exchange of information being conducted as a
private enterprise. The expression, _exchange of information_, is used
advisedly, for the service of these agencies consists mostly of reports
giving the experiences of other merchants. To quote from 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 business, whether our subscribers or not, and in this way secure
the names of all consumers in business or private life.
We are 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 specimen rating with an explanation of the
same.
"John Doe, carpenter, 187 Broad St., _5G 2F._"
This rating indicates that five different merchants have found by
experience that John Doe is a prompt paying credit customer, and two
other merchants have found him somewhat slow, but regard him reliable
and trustworthy.
Next example:
"John A. Doe, lawyer, 210 North Second St., _4D 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 unworthy 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 developed the fact
that this particular customer's locality had suffered severely 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 customer.
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 be 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 that 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 customers,
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.
Without question, 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
customers 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 style, to accommodate folders about 7×9 inches in size, is more
compact, and has been found very satisfactory for this purpose.
[Illustration: Fig. 4. Front of Credit Information Folder]
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
the essential facts which naturally influence the credit risk, and
should be in such form that it can be 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. 6. is used. The special feature
of this card is that both the capital and credit ratings are listed.
Such a card saves the time that would be required to refer to 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.
[Illustration: Fig. 5. Back of Credit Information Folder]
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 is to be preferred.
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, that the
financial information refers more especially to the firm members. This
card is used to supplement the books of the agencies.
[Illustration: Fig. 6. Credit Agency Report Card]
[Illustration: Fig. 7. General Credit Report Card]
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 business
in which the purchases of a customer are infrequent, and involve
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.
[Illustration: 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, and it is
customary to have each branch house collect its own accounts. Weekly
reports of the business transacted, including sales, collections, and
stock on hand, are made by each branch to the home office. 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 direct.
[Illustration: Fig. 9. Card Record of Reports Received and Credit
Granted]
[Illustration: Fig. 10. Credit Card for Retailer's Use]
Large concerns, operating many branches, have found by experience that
it is best to pass on all local applications for credit at the home
office. This work is handled by a division of the credit organization,
known as the _branch house credit department_.
The 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. When a dealer wishes to secure credit at a branch,
the form shown in Fig. 11 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.
[Illustration: Fig. 11. Branch Office Credit Application]
Only the lower half of this form is filled in at the branch office. The
rating, credit limit, and terms are entered when a reply is received
from the home office.
When the application is received at the home office, the files are
consulted for any information that may have been 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.
This form is made in duplicate, both the original and copy being
forwarded to the branch. The original is placed in the branch house
files, together with the application for credit. Both the cashier and
the manager of the branch sign the duplicate, as an acknowledgment that
they understand the terms, and it is then forwarded to the home office.
[Illustration: Fig. 12. Branch Office Credit Notice]
In the home office, the original application and the statement of terms
granted, signed by the branch manager, are filed together. A folder
is used for each customer, filed alphabetically with subdivisons for
states and towns. Every subsequent report and memorandum of credit
information is filed in this folder.
When the report from a branch house shows an account to be past due,
an inquiry blank, as shown in Fig. 13, is sent to the branch. This is
in duplicate, the copy being retained at the branch house, and the
original forwarded to the home office. In both offices, this report is
eventually filed in the folder with other credit information.
A noticeable feature of this system is that all blanks are made in
duplicate. This insures duplicate credit files in the home office and
branches. It is, of course, necessary for each office to forward to the
other any special data that may be received, from whatever source.
COLLECTIONS
The duties of the credit man are not ended when he has passed on the
credit of a prospective customer; a very important duty follows, and
that is to collect the accounts that he has placed on the books. He may
assign the handling of collections to another, but the collection desk
should be under the supervision of the credit man.
[Illustration: Fig. 13. Branch Office Credit Inquiry Blank]
The handling of collections furnishes one of the most severe tests of
the ability of the credit man; it calls for the exercise of a certain
tact, not absolutely essential in any other work in business life. The
successful collector must, first of all, be a good judge of character;
he must be able to read character, and govern himself by what he learns
of his customer's peculiarities. He must be a diplomat, with the happy
faculty of smoothing out the rough spots, and satisfying the chronic
kicker. While using judgment in granting special favors to the slow-pay
customer, he must be able to differentiate between the temporarily
embarrassed but able and honest debtor, and him who continually makes
use of a hard-luck story to arouse sympathy and gain time; he must know
when to be gently firm, and when to take vigorous action to save his
house from loss.
One of the essential accomplishments of a good collector is the ability
to write diplomatic letters. Collection correspondence is in a class by
itself. The most valuable correspondent is said to be he who can write
letters that sell goods. We have no fault to find with this statement,
but prefer the way Mr. Cody puts it--"the ability to write letters that
make people do things." The collection correspondent must be able to
write letters that make people do things.
In a wholesale or manufacturing business, or any business that is
not strictly local, practically all of the collections are made by
mail, hence the subject of collection correspondence becomes of
extreme importance. The extent to which letters are used is naturally
governed by the ideas of the collector; by some they are used freely,
by others as special appeals or duns only. One very successful credit
man, who has handled the collections in one of the largest mercantile
establishments in the country, gives it as his opinion that a letter
should be sent with every request for payment--even with the monthly
statement.
Except in unusual cases, specially dictated letters are not necessary;
filled-in form letters answer every purpose--indeed it is claimed by
many that carefully prepared form letters, designed to meet certain
definite conditions, are superior to letters dictated in the ordinary
rush of business. Forms can be prepared for different classes of
customers, and to meet any of the contingencies likely to arise in the
ordinary business. Form letters used for collection purposes should
be exceptionally well printed, and great care must be used to secure
ribbons that are an exact match for the body of the letter. There is
nothing more calculated to make an unfavorable impression than a letter
in which the date, name, and address fail by several shades to match
the body.
The exact form of the letters must be varied to suit the particular
business in which they are to be used; they will differ in
manufacturing, wholesale, and retail lines, in a mail-order business,
or for installment accounts. In a manufacturing business, for instance,
a letter something like the following might be sent with the monthly
statement.
DEAR SIR:
In accordance with our usual custom, we enclose a statement of your
account as it appears on our books at this date. Will you kindly
compare this with your records, and advise us of any discrepancies.
That we might be in a position to fill your orders promptly, we have
kept our factory running on full time during the past few months,
which has involved quite a heavy investment in material. We will,
therefore, appreciate a check from you covering the amount shown to be
due.
We will also appreciate a liberal order, which we can fill at once, as
our stocks are unusually complete just now.
Very truly yours,
Such a letter leaves a very much better taste than _please remit_
stamped on the statement, and yet it plainly asks for a remittance.
There is something about the letter that savors of the personal appeal,
and gives the debtor the feeling that a special accommodation is being
asked, which he should make an effort to grant.
If the first letter fails to bring a response, it should be followed
up. The second letter, following the first in about 10 days, might be
as follows:
DEAR SIR:
A few days ago we sent you a statement of your account, showing a
balance of $, of which $ is past due.
Not having heard from you, we assume that the account is correct, and
that it will be satisfactory to you to have us draw on you on the 15th.
In the meantime we will be very pleased to fill your order for any of
our goods that you may need.
Very truly yours,
A letter of this kind rarely fails to bring a goodly percentage of
remittances. The mere suggestion of a draft often has the desired
effect. The average merchant dislikes to have a draft presented; he
feels that it has a tendency to injure his credit with the very man
whom he may be obliged to ask for an accommodation--his banker. The
polite request for an order acts as a sugar coating which covers the
suggestion of a dun, and leaves the recipient in a pleasant frame of
mind.
The second paragraph of the above letter does not contain a positive
statement that a draft will be made, nevertheless, such a course is
hinted at, and, unless a communication of some kind is received, the
draft should invariably be made on the date specified. The customer
should be taught that the collector means just what he says; any other
course indicates a lack of sincerity, and gives the customer the
feeling that these notices are not to be regarded seriously.
On the other hand, it is possible to go to the opposite extreme in the
use of drafts. The writer has in mind a business man who had a habit
of sending statements of all accounts the first of the month, without
a letter, and following these with drafts about a week later. Many
times these drafts were made before it was possible for a remittance
in response to the statement to reach him, which caused hard feelings,
and the loss of many customers. It is the custom of many firms to pay
all bills on a certain day of the month--a fact which the observant
collector quickly notes, and governs himself accordingly in the matter
of sending drafts.
When a draft is returned, a letter should be written immediately; and
in this letter a little sharper tone is justifiable. The following is a
good sample of a letter to be used at this point:
DEAR SIR:
We are disappointed to find that you have allowed our draft to be
returned unpaid, as we had counted on this amount to help in meeting
our current obligations. While the amount of your indebtedness is not
large, the aggregate of the many small accounts makes up the large
amount outstanding on our books, and to not receive the amount when
due, causes us considerable embarrassment.
As you know, our terms are strictly 30 days net. We must insist on
receiving prompt payment when bills are due; our prices are figured
on this basis, and our arrangements for meeting supply bills and
pay-rolls are dependent on the prompt payment of bills by our
customers.
Your total indebtedness to us is $, of which $ is several days past
due. We would appreciate a remittance of the entire amount, but must
insist on the immediate payment of the amount past due. Failing to
receive either a remittance or your note, by the 23rd, we will again
draw on you, and shall expect you to pay the draft when presented.