Banks are held responsible by public authority as fiduciary institutions.

Banks work on a smaller margin of profit than is customary in mercantile pursuits.

Merchants are more dependent on their bank than on any one creditor. Banks are responsible for their own funds and also for those left them by their depositors to whom their responsibility is rigidly outlined by law. Out of the nature of the situation then there comes an ultraconservative policy.

The bank builds up with its clients a confidential relation which bars the free exchange of direct information. There is, though, one function which the bank can perform as a source of credit information-that of verifying information already received from other places. If the customer states that he has a certain balance, the banker will ordinarily indicate whether or not it is correct. If the customer states that he has borrowed a certain amount from the bank, it can be verified. If the customer states that he always meets his bank loans promptly this fact can be verified. The bank can also give information as to whether or not a customer honors drafts passed through the bank and can confirm or deny apparent financial strength as indicated from other sources of information. The bank is interested in credit; the mercantile firms. are interested in credit. Neither can afford to discourage legitimate methods of acquiring credit data. More cordial relations, more reciprocity, are needed in credit dealings between banks and credit managers. This seems to be a source of credit interchange which may well be developed.

Trade Journals and Other Publications.-Most firms now belong to trade associations. These associations often furnish credit information direct in the shape of reports and special communications and they generally have a publication which is

filled with news of the trade picked up from time to time by the editorial staff. It is quite possible for a credit man to be on the subscription list of most of the publications of trade organizations in which his customers may be interested and by keeping up to date on what he finds in them, he has available a vast supply of supplementary information bearing upon many of his customers. The trade journal and the trade. journal's representatives are well acquainted with trade gossip.

Besides the trade publications there are numerous other magazines where small items concerning individuals and their successes and failures become the beckoning or warning signs respecting particular individuals, so far as the reader is concerned, if he is quick to draw conclusions and to scent implied connections. Most communities have a business paper as well as daily papers and local magazines. All of these serve as a source for items of information essential to a well-rounded knowledge of a credit subject.

Statistical and Economic Services. In addition to this type of information, statistical and economic services of various types answer the same purpose. The credit manager is

not only interested in individual success or failure but in the success or failure of particular groups in the business world. He is interested in a comparative study of expense in his particular line of business. To a certain extent he is the "watch dog of the treasury" and is at all times interested in the general economic welfare of the nation. He will consult Moody's Manual for detailed information concerning the financial standing of particular firms, as well as the regular reports of the Mercantile Agency. He will also read with care some one of the statistical services of a national character such as the reports of the Harvard Economic Service, the Brookmire Economic Service, or Babson's Reports. He cannot, if he is wise, be guided blindly by any of these which he may read, but he

can find in them a basis for his own study of conditions as he finds them applying to his particular business. As he gets successful reports, gathers comparative statistics in a particular line of business, he finds himself growing in a knowledge of the business and possessed of a number of mental measuring sticks of success or failure. All these supplementary sources of information serve to strengthen his position and he grows in the ability to command at a moment's notice an organized array of all material and in the power to draw conclusions on the basis of this array in accordance with the true condition of the subject's business.

REFERENCES

Ettinger, Richard P., and Golieb, David E. Credits and Collections, Chaps. X, XI.

Hagerty, James Edward.

Mercantile Credit, Chap. IX.

Walter, Frederick W., Ed. The Retail Charge Account, Chap. X.

CHAPTER XII

THE FINANCIAL RECORD AND ITS

INTERPRETATION

The Relationship of Accounting to Credit.-The credit manager as a part of the management or at least as a representative of the management is interested in running the business with a view to a fair profit for an economic service rendered to the community. The financial success of the business is the ultimate aim. He is dealing with other firms whose ultimate aim is also financial success. In an economic organization, such as the one in which we live, financial success or failure is measured in monetary terms-in dollars. Dollars are merely the units of a system of measure by means of which we give numeric expression to the relationship between goods and a standard of value and medium of exchange, or as we commonly term it, money. To indicate whether or not at the end of a period of operations we have improved our financial position, a system for the recording of all commercial transactions must necessarily be adopted. The record, by means of which we indicate income and out-go and make a statement of our financial standing, is called book-keeping. If all transactions were cash transactions, less accounting would be necessary because the amount of money on hand at the end of a period would indicate the proportion of success which had been attained. The credit transactions, however, call for detailed records in order that no aspect of any particular transaction may be forgotten during the period of time between the first and second transfers of property. In the accounts, then, the credit manager finds one of his chief sources of information and his record of the paying habits of his customers, together

with complete statements of their actual standing at a particular time. This development has often led, as suggested in an earlier chapter, to the natural evolution of the bookkeeper into a credit manager.

Sources of Financial Information. The primary source of financial information is, of course, the books of the customer. His record of expenses and income and the financial statement which he takes off at periodic intervals furnish the original data for the financial record presented to the credit man as a basis for the granting of credit. The financial statement is a summary of condition at a particular time indicating what is owned and what is owed. In it are reflected the results of the business transactions carried on during a period of time. The profit and loss statement or income and expense account indicate the manner in which the existent condition was created. It has been effectively said that a financial statement is a photograph of the business as it stands, while a profit and loss account is a moving picture of the financial operations of the business during a given period of time.

Secondary sources for financial information include banks, mercantile agencies, and other customers. These serve as a check against that information which comes directly from the original books of account.

Business Practice in Relation to Financial Statements.The question of demanding financial statements is one which must be settled in each individual case in the light of particular circumstances. In some lines of business it is customary for debtors to furnish complete statements at regular intervals to all the firms from which they buy. It can be said that the number of debtors who regard the request for a copy of a financial statement as being too prying is gradually growing less.