CHAPTER VIII MERCANTILE AGENCIES Definition and Types of Mercantile Agencies. It would hardly appear unsafe to state that in many houses by far the largest percentage of orders on credit is passed upon principally or entirely on the basis of information secured from mercantile agencies through their reference or rating books, special reports, or both. Mercantile agencies are institutions formed for the sole purpose of gathering information concerning the credit standing of merchants, manufacturers, and traders generally, and disseminating that information to their respective members or subscribers. These agencies are of two types, general and special. The former are very large organizations, cover many and varied lines of trade over an extensive area, and are universally used and recognized as authoritative and valuable. The two leading institutions of this type are the R. G. Dun & Company, and the Bradstreet Company, better known as Dun's and Bradstreet's. Special agencies restrict their operations either territorially or according to lines of trade and types of names investigated. They generally cultivate the field more intensively and furnish information of a more thorough and specialized nature, as will be shown in the latter part of the present chapter. GENERAL MERCANTILE AGENCIES Origin. The mercantile agency system was an immediate outgrowth of the crisis which occurred in 1837. Prior to that date, western and southern merchants visited their sources of supply in the eastern market once or twice a year. Credit relations were then established through personal contact and through recommendations of old customers in good standing. In those earlier days there was but little definite information accessible to the merchant concerning his customers' character, capacity, and financial strength, and confidence was, therefore, not infrequently badly misplaced. The means of travel were slow, uncertain, and difficult, and the traveling salesman had not yet made his appearance. Communication facilities were equally inferior and inadequate, so that but meager data, of an uncertain nature, could be obtained through mail inquiries. As a result, credit was injudiciously dispensed and during times of stress the losses incident thereto were appalling. To be sure, a few of the larger houses employed agents whose duty it was primarily to collect accounts and incidentally to gather all sorts of data pertaining to the customers' credit standing. The vast group of smaller houses, however, found this method prohibitive from the standpoint of cost and were forced to base their credit decisions upon the meager and uncertain information made available principally through the personal interview. The avalanchial movement which finally swept the country as a result of the crisis of 1837 carried with it destruction and ruin to numerous banking institutions and business houses, the effect of which was felt the more keenly and painfully in the market of the East. With the passing of the clouds, merchants throughout the country began to realize that one of the chief contributory causes of the crash and the depression which followed was inherent in the conditions which governed credit granting in this country. Verily, no other factor was responsible to any greater extent for the extensive speculation and overtrading which prevailed in the West prior to the panic than the assumption of unnecessary hazards involved in the unsystematic and unscientific credit extensions. Thus the crisis of 1837 brought the merchants face to face with the necessity of closer and more thorough scrutiny of credit risks. The eagerness with which information was sought for by sellers of goods on time. finally resulted in the establishment of the mercantile agency. History of Dun's and Bradstreet's.-The first general mercantile agency was established June, 1841, by Lewis Tappan, a New York merchant, who carefully recorded all the information he could gather having a bearing on his customers' standing. The records thus compiled covered a series of years and embodied the concern's entire experience with all firms trading with the house. The jobbing house of Lewis Tappan failed, but the records were preserved. The eagerness with which other houses sought for this information encouraged him thus to establish the first organization for the sole purpose of collecting and disseminating credit information. In 1845 Benjamin Douglas joined Lewis Tappan and his brother Arthur, who was associated with him, and in the year following Douglas was admitted as a partner, and assumed the chief management of the business. In 1849 Lewis Tappan retired, his brother taking his place, and the firm style was changed to Tappan and Douglas. In 1854 Benjamin Douglas became sole proprietor and at this time his brother-in-law, Robert Graham Dun, was admitted into partnership, the firm being succeeded by B. Douglas and Company. Douglas finally withdrew in 1859, selling his interests to his partner, and the company was thus succeeded by R. G. Dun & Company, the present proprietors. The Bradstreet Company was organized in 1849. In the year preceding the formation of the company, John M. Bradstreet, a Cincinnati attorney, was made assignee of a large insolvent estate. While thus performing his duties, he necessarily acquired a great deal of information concerning debtors and creditors of the estate, residing in and near Cincinnati. He, thereupon, proceeded to make arrangements with several New York concerns for the selling of the credit information thus accumulated. The venture proving a success, he was led to found an institution similar to that described in the previous paragraph for the exclusive purpose of dealing in credit data. Bradstreet's Improved Commercial Agency was consequently inaugurated in 1849 and the firm was finally incorporated in 1876 under the present name. Numerous other agencies entered the field of furnishing similar services, but were compelled to abandon the undertaking and retire, so that these two organizations now have practically a monopoly of the general agency business operations. It is not likely that any competition will develop in this field of activity in the immediate future, for it is doubtful if any new institution commencing now could immediately or within a short. space of time so perfect its organization as to be able to furnish the same kind of service on as vast a scale as the two agencies are at present rendering. This fact tends to enhance considerably the reputation for reliability, permanency, and superiority that these agencies now enjoy and have enjoyed for many years past. These older agencies not only have the undisputed advantage of an early start, but are also a product of a long series of years of gradual expansion and invaluable experience. |