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 respecting 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.