CHAPTER X INTERCHANGE OF LEDGER EXPERIENCE To obviate the difficulties incident to the direct exchange of ledger experience among credit grantors, credit interchange bureaus have been established. The development of these intermediaries was so tremendous, particularly during the decade beginning with 1910, that many organizations are now to be found the sole object of which is to collect quickly and with a minimum of effort complete ledger figures and make them conveniently available to their respective members or subscribers. Thus not less than three modes of securing ledger experience through some sort of a central bureau are at present at the disposal of the alert credit manager. These means are as follows: 1. The Credit Clearing House, the National Credit Office, and others. 2. The Credit Interchange Bureaus maintained by local associations of credit men. 3. Trade credit bureaus, reporting on a single line of trade or a limited number of allied trades. THE CREDIT CLEARING HOUSE One of the institutions clearing information on so extensive a scale as to embrace the entire nation is, without doubt, the Credit Clearing House. Established in 1888, the organization has gradually though consistently grown to such dimensions as to constitute at present the largest of the collection agencies in the country, as well as one of the most effective. In addition, it has for years served as a center for the collection and distribution of a very extensive mass of credit information. Method of Operation.-Each member is required to register with the agency the names of his customers and is under obligation to contribute his experience whenever one of his accounts is the subject of an inquiry. In return, a copy of the report summarizing the data thus assembled from all interested parties is furnished each contributor. To insure absolute accuracy, each member specifically agrees to substantiate all or any of the items submitted, should he be called upon to do so. The information gathered by this agency consists primarily of ledger figures compiled from every important wholesale market. Moreover, the subjects covered may submit their financial statements if they desire to do so. When statements are furnished, their contents are merely added to the report without any attempt at analysis and interpretation, thereby precluding the entrance of biased personal opinion. Functions. As already implied, prominent among the services rendered by the agency is the credit report furnished inquirers upon request. The principal feature of this report consists in an array of ledger experiences, giving the symbol representing the contributor, the highest credit extended, the amount of order, amount owing, amount due, manner of payment, terms of sale, and general remarks of material significance. These experiences are arranged impartially by districts. References do not represent the choice of the debtor, nor are the contents of the report disclosed to him. At the bottom of the report there appears a summary in percentages of the current investigation to which all previous clearings are added in similar manner. The mode of arriving at this convenient index as to the manner of payment is very simple. Thus, if out of 30 houses reporting on a risk, 20 disclose slowness in payment, this fact will appear at the foot of the report as follows: "30 payment experiences, 60 per cent slow." A comparison of the index representing a number of clearings will at once reveal the direction in which the merchant's business is moving. Following the index relative to payment experiences, the extent of all attempts to place unusually large orders, or to establish credit relations with a new group of houses, is recorded also in percentages. This is commonly known as the "New Credit" index. It is arrived at by computing the percentage of the reporting firms from whom new credit was asked. When coupled with the index reflecting manner of payment, it affords an excellent barometer of the debtor's present financial condition. Another function of the Credit Clearing House is to warn its members by special notice when demands for new credit are unusually numerous, suggesting that a report be consulted in order to ascertain the true condition of the risk. Simultaneously, the subject of the notice is given an opportunity to explain the reason for his increased demands, and, if deemed reasonable, the explanation is transmitted to all parties concerned. Credit Checking. The agency also offers to interpret reports for its members and render credit decisions as well as guarantee shipments. Under this system, should a credit manager be in doubt concerning an order in hand, he may, instead of asking for reports, consult the Credit Clearing House, where he will be told whether or not shipment should be made. If losses are incurred because of improper decisions, the agency is obligated to pay the amount involved. In case a merchant is advised not to ship, a detailed report purporting to show reasons for the decision rendered is immediately furnished the inquiring party. This service obviously has its advantages and disadvantages. Concerns whose volume of business does not warrant the employment of a credit manager may find the service of much value. Moreover, much time and worry would be saved by this means when an immediate ruling on a doubtful risk is urgently demanded. It is not unlikely, however, that, because of the risks involved, the agency will be prone to exercise undue care and caution in rendering decisions and, through its ultraconservative attitude, cause a curtailment in the volume of business of its subscribers utilizing this special phase of its service, for its success is not so much tied up with the volume of business done by the insured as it is with the amount of loss incurred. The most important objection to "credit checking," as the service is termed, however, lies in the growing tendency toward widening the gap between selling houses and their customers, thereby still further accentuating a situation which has already reached an acute stage. If some measure of direct contact is to be preserved, credit checking should be regarded with suspicion. CREDIT INTERCHANGE BUREAUS Organization and Purpose.—The purpose of the Credit Interchange Bureau system of the National Association of Credit Men, as set forth in some of the charters, is to provide an impartial medium between debtors and creditors and between creditors themselves, to establish a system whereby those who are interested in any accounts may freely and unreservedly interchange the facts contained in their ledgers: (1) without the necessity of direct reference, each to the other; (2) without divulging the information under their own name; (3) and receiving, in exchange for data contributed by them, a summary of experiences of all others interested in the account. The system embraces at the time of this writing 57 Interchange Bureaus. Each bureau is an independent corporation under the supervision and control of the officers of the local Association of Credit Men, is not organized for profit, and its charges for services are so fixed as to cover merely the cost of operation. All of these bureaus, together with the Central Credit Interchange Bureau maintained at St. Louis, are under the direct supervision of a committee of the National Association of Credit Men, and the manager of the Credit Interchange Bureau Department of the National Organization. Each bureau is inspected annually by the manager of the Credit Interchange Bureau Department, and, in the event of emergencies or complaints on the part of one or more of its members, a special inspection may be conducted. The National office also retains the power to recommend to the local board of directors the dismissal of its bureau manager under the penalty of expulsion from membership in the National Association of Credit Men in case its recommendation remains unheeded, unless satisfactory cause for ignoring it is duly given. The membership of this bureau system is strictly limited to manufacturers, wholesalers, jobbers, and bankers, and the accounts dealt in are those of business firms and not of individuals. Method of Operation.-Each member is designated by a symbol, usually consisting of a number. In a few instances the symbol constitutes a combination of a letter and number, to wit, D-65, the letter ordinarily referring to the trade division in which the member is classed. The tendency, however, seems to be in the direction of the former practice. It is needless to say that the key bearing the code numbers is carefully guarded so as to preclude identity of concerns reporting. Each individual firm, however, is notified of the code by which it is to be designated. One of the first requirements of new members is to file with the bureau a complete list of customers, so that a card may be made out immediately for each subject. These cards are arranged alphabetically in a "customers' list" file, and contain the name and address of the account, and the symbols of the members doing business with him. To supplement the information originally submitted, members are also required to furnish records of first orders on forms provided for the purpose (see Fig. 22), for it is obvious that the prompt filing of new accounts is essential to a complete clearance. At its inception, each local bureau is required to determine its zone of direct interest. Such a zone usually embraces an area in which approximately 60 to 75 per cent of its members' business NO. Promptly Recording First Orders. Will Enable Bureau To Make Complete Clearance FIG. 22.-Record of first orders sent to the bureau. is transacted. The direct interest zone being definitely determined, the office forwards to the Central Bureau at St. Louis all names of customers dealing with its members, who are located outside its own zone. The Central Bureau, in turn, makes out a card for each extra-zone subject thus reported, containing the code numbers of the various bureaus interested in him. In this manner, as will be seen shortly, the Central Bureau serves in the capacity of a clearing house for the Interchange Bureaus of the entire system. In addition to the customers' list card file, the bureau is provided with a report "folder file," containing master sheets, the separate items making up the master sheets, and several copies of each of the latest clearance reports. The folders are usually filed alphabetically, although a combination of geographic and alphabetical arrangement is not uncommon. |