It is clear from the above table that, in case the installment seller intends to carry the whole burden of financing on his own shoulders, he must be prepared with a working capital amounting at a maximum to $71,000. Unless his business afterwards increases more rapidly than his cash receipts, he will be able later to draw large profits in cash which are the accumulating result of sales that he has made during the preceding months.

Loss of Capital Through Bad Accounts.-A second problem arises in the loss through bad accounts. This is particularly true in connection with the sale of consumption goods such as pianos, phonographs, vacuum cleaners and books. There is a thrill and interest in the newly purchased object which makes payment easy within the first ten or thirty days, but after the newness has worn off and the article has become slightly shabby or worn, the buyer has a thousand excuses as to why he should not be particularly interested in meeting his payments regularly. This natural inertia is one of the serious difficulties in connection with installment selling. As business grows and the number of these accounts becomes greater there is a constantly increasing cost of goods sold which has to be compensated for by additional working capital and additional collection costs.

Remedial measures in installment financing have been well outlined as follows:

When the dealer has arrived at a point where the amount owing him in installment accounts has reached the previously determined limit of prudent capital investment; or, in the absence of such previously determined amount, realizes that he is becoming hampered and restricted for want of cash, it is surely time for him to apply the brakes. This can be done in two ways: first, by refusing new business in excess of the amount currently realized from collections; and second, by arranging for new capital, or by pledge of lease contracts as collateral. It is important and fundamental that such loans shall be self-liquidating, and shall have no other fixed due date. Carefully selected contracts, with an initial

payment of at least twenty-five per cent of the purchase price, make it a sound and profitable investment. The dealer must, however, take care to see that the charge for the service is not excessive, or so burdensome as to rob him of all profit. This new capital is variously obtained from the dealer's own bank, financing companies, or friends."

Management of Installment Sales.-Unique problems present themselves in the granting of installment credit. The house granting such credit is, of course, protected by the sales contract and enabled to secure repossession of its goods in case of default of payment, but these are "last resort" methods. The primary aim of credit granting is the arrangement of such terms that the buyer may be able to meet his payments when due and secure final possession of the desired article in his own right.

Of prime importance, therefore, in the determination of installment credit is the moral risk involved, hence the emphasis that is placed by all credit men on an accurate determination of the character of the applicant. Estimation of his honesty and integrity may be verified by securing statements of his past record from such sources as he may suggest or the position of the house make available. In the moral risk involved, there must also be considered the customer's willingness to pay, the determining factors of which may be his place of residence-whether commensurate with income as represented and accompanied by a fair degree of permanency of residence; his environment; his social connection; his marital status; his occupation; and his intelligence. The ability to pay may be estimated from the financial record secured from the applicant, taken with due reference to his probable willingness to discharge his indebtedness. The ability to pay deter

B. W. Griffin, Installment Sales and Collections, p. 13.

mines the limit of credit to be granted, serving as an aid in singling out persons who are inclined to be too extravagant and hasty in their purchasing.

It is often impossible to secure from those asking credit in the installment house a definite statement of their financial position and obligations. It is essential, therefore, that the credit man secure in his interview the amount of weekly, monthly and yearly income (indicating steadiness of employment) and a statement of any legal trouble the applicant may have had. These facts secured, the credit manager is enabled to make a fair estimate of the moral and financial risk involved, to extend his credit and state his terms.

Installment Sales Procedure.-The retail establishment which is not primarily an installment house completes the conditional sales transaction in various ways. Those sales which are made on a basis of monthly credit settlement-the charge account-are completed on the basis that goods are delivered; it is assumed that the title has passed to the purchaser, and the seller has for his protection an open account of the transaction which he may or may not collect. A second method, sometimes used when purchases are unusually heavy, is that of having the buyer sign a series of notes due on certain dates, each one of which is an obligation in itself and which must be paid. The third method is one in large use in installment houses and assuming greater importance in other retail establishments-the sale of goods under the conditional sales contract in which title does not pass to the purchaser until the completion of the installment payments for the purchase. To aid in understanding the additional protection which such a sales contract affords the seller and its consequent advantages in sales transactions, a typical form of conditional sales contract is reproduced:

CONDITIONAL SALES CONTRACT

Los Angeles, Calif.....

....

.192..

.....

THE A. B. C. COMPANY, hereinafter sometimes called the Seller, promises to deliver to..... hereinafter sometimes called the Buyer, and upon the payment of the whole purchase price hereinafter recited, will convey good title to the following described article or articles to the Buyer, to wit:

The said Buyer promises to accept said article or articles and to pay the whole purchase price therefor in the manner and at the times hereinafter provided.

DELIVERY: Article or articles to be delivered f.o.b....

on the............day of........

19....

PURCHASE PRICE: The purchase price of said article or articles is ($...........) Dollars, payable &

($....... .) Dollars cash upon the execution of this instrument, and

INTEREST: Deferred payments on the purchase price shall draw interest at the rate of..... .per cent. per annum from the...... ......day of

by notes.

19...., and may at the request of Seller be evidenced

TITLE: The title and ownership of said article or articles shall remain in THE A. B. C. COMPANY until the whole purchase price is paid. Upon Failure to pay any installment of the purchase price, or upon default herein, or breach hereof, on the part of the Buyer, the said THE A. B. C. COMPANY, shall have the right of recaption and may, without let or hindrance, seize and retake the article or articles into its own possession wherever they may be found. In which event all moneys theretofore paid by the Buyer on account of the purchase price shall be deemed and considered as payment to the Seller for the use, enjoyment and possession of said article or articles from the time of delivery until the exercise of the right of recaption. Further, in such event, the Buyer waives any and all claims to damages that may arise or accrue to him from such seizure and from this transaction as a whole, and agrees not to lay claim to any damages against the Seller on any account, or for any reason whatsoever.

Upon payment of the full purchase price, a proper bill of sale will be executed and delivered, transferring title from THE A. B. C. COMPANY to the then purchaser.

If the Buyer should give a note or notes for the balance of the purchase price, it is distinctly understood that said note or notes are not accepted as payment, so as to pass title. Under no circumstances shall title to said article or articles pass from the Seller until the whole purchase price is fully paid in money. In case notes are given and accepted they are to be deemed a part of this contract. Should any installment of the purchase

price or of the interest thereon (whether represented by note or otherwise) not be paid when due, then the whole of said purchase price and interest remaining unpaid shall become immediately due and payable at Seller's option. In case of any action to recover any sum hereunder (or any note or part thereof), Buyer promises to pay reasonable attorney's fees. Buyer's rights hereunder shall not be assigned without written consent of the Seller. Said article or articles shall not be leased, nor shall Buyer part with possession and control thereof. Buyer hereby assumes all liabilities by reason of any accident or injury to persons or property arising out of the existence, use or possession of said article or articles, and agrees to save Seller harmless from any such liability, including cost of legal defense. Any payments made by Buyer shall first be applied to the liquidation of any repair bills or other indebtedness due Seller outside of or independent of this contract; thereafter any payments shall be applied hereto.

SAFE KEEPING, ETC.: The proposed purchaser shall be responsible for the safe keeping of said article or articles; the Buyer will insure the same for value, loss, if any, payable to Seller, or if not insured by Buyer, the Seller may insure same and the Buyer agrees to pay said insurance premium on demand; Buyer agrees to pay freight and all setting up expenses; Seller will not be held responsible for any reasonable delay in manufacture or any other delay in fulfillment of this order due to strikes or any other causes beyond its control, or for any damage to article or articles delivered and receipted for by the transportation company in good order. In case THE A. B. C. COMPANY is to take second-hand article or articles in exchange, the undersigned warrants them free from all liens.

Buyer shall safely keep said article or articles in proper repair and at all times in charge of competent persons. THE A. B. C. COMPANY reserves the right to inspect said article or articles during business hours. Seller may retake said article or articles at any time if, in its judgment, the same are being misused, or not kept in good order, and in such event Buyer shall pay on demand, and independent of the other provisions thereof, costs of any repairing of said article or articles, and this even though there has been a recaption. Proposed purchaser shall not remove said article or articles from the County of...... .....without the written consent

of THE A. B. C. COMPANY. If said article or articles are attached or levied upon by any alleged creditor of the Buyer or if a petition in bankruptcy is filed by or against the Buyer, then Seller may immediately retake possession of the said article or articles and all moneys theretofore paid shall be considered as compensation for their prior use and possession. Any expense incurred by Seller in the process of recaption shall be paid by Buyer on demand, including necessary repairs and expenses of transporting article or articles back to Seller's place of business. In case the Seller commences any action to replevin said article or articles, the Buyer prom