CHAPTER XII THE CREDIT RISK AND MISCELLANEOUS SOURCES THE PERSONAL INTERVIEW In order to draw the line sharply between the desirable and non-acceptable risks, more than a superficial knowledge of each customer is required. Much information can be gained from the various sources aiready treated in previous chapters. Notwithstanding the abundance of data obtainable through these sources, it is frequently desirable to establish and maintain a certain degree of personal contact with the trade. Interviewing Customer in Office of Selling Firm.-Frequently when a merchant is seeking a line of credit, he or his representative will visit the credit manager with a view toward establishing satisfactory arrangements with him. Here is an invaluable opportunity of which no credit manager can afford not to avail himself fully. By assuming a friendly attitude rather than that of a cross-examiner, he may lead the prospective customer to express himself on market conditions, general trend of prices, styles, and other factors directly affecting his particular line of trade. It should be the aim of the credit manager so to steer the conversation during such an interview as readily to reveal the degree of prudence, judgment, and system exercised in anticipating the demand of his clientele and in the general operation of his business. He will thus discover whether the applicant is a shrewd buyer and so selects his goods as to insure their salability, or whether he is uninformed and buys injudiciously and indiscriminately, in which case he is apt to overstock with a poorly selected line of goods. Once taken into the credit manager's confidence by an attitude of friendliness and candor, the applicant will talk frankly and freely, thereby revealing facts in regard to his capital responsibility, organization, location, present circumstances, and prospects of his business enterprise. To avoid any possible resentment against having their credit. questioned, it is the practice of many houses to ask out-of-town customers calling on the firm to meet "our Mr. Smith," instead of proposing to meet "our credit man." The credit manager not being mentioned, the customer may be under the impression that he is talking to the treasurer or auditor of the firm. He will thus converse frankly and freely, and incidentally give all the information that may be required. It should be borne. in mind at all times that entering into details should be avoided during the first or any personal interview at the seller's office, for that sort of information can be secured through the usual channels. The chief object of an interview is to permit the credit manager to size up the risk; to form a personal impression of his character and business competency; to serve as a basis for future correspondence; and to enable him to interpret more skilfully the information contained in the reports of mercantile agencies and credit bureaus. Interview at Customer's Place of Business. In the case of large accounts which present difficult decisions, it is well worth while for the credit manager to visit the customer at his place of business. Although it is more or less difficult and, particularly in large establishments, well-nigh impossible to meet all the customers personally, it is nevertheless essential that the credit manager arrange periodically to make credit trips around his trade area, calling on those risks concerning whose credit responsibility he is seriously in doubt. In visiting the customer's place of business, whether it be a retail establishment, a wholesale house, or a manufacturing plant, the credit man can acquire certain data which is not obtainable through any other channel. He can thus form a personal impression of the customer's methods of doing business, general proficiency, location, arrangement of stock, and many other factors. In addition to this, the credit manager has the invaluable opportunity of sizing up the risk, as to his character and business ability, probably to better advantage than when meeting him at the credit man's office, for here the man is seen in his setting, as he naturally appears from day to day, and is, therefore, likely to be devoid of all artificial and assumed characteristics. Traveling Credit Representatives.-Some of the larger houses find it advantageous to employ credit department repre sentatives. These are allotted specific territories, the same as salesmen, which they are required to cover periodically with a view of inquiring into the credit standing of applicants and of such old customers as directed by the credit department. Most of the points covered by them in their investigations parallel those secured by traveling salesmen, save for the thoroughness with which the more qualified and better equipped credit specialist conducts his inquiries. In addition, these investigators inquire into the financial condition and other relevant factors determining the customer's debt-paying power. It is needless to say that the scope of a given investigation and the degree of thoroughness to be exercised in its conduct vary considerably with the relative seriousness of the situation involved. If serious weaknesses are disclosed, the credit department representative may feel warranted in even examining the books of account. In other instances it may suffice to obtain the latest available statement of financial conditions or merely to discuss conditions in general. No set rule can be profitably laid down as a guide to a determination of the scope of such an investigation, since the extent of any inquiry will necessarily have to be governed by the circumstances of the particular case. Many houses are at present adopting the policy of sending representatives to visit large accounts which involve some serious doubt or difficulties, even though no special traveling credit investigators are employed. The effect of such a visit may be to lead to a closer and friendlier relationship based on a better mutual understanding between buyer and seller and thus result in increased volume of business, or else it may lead to a decision involving the necessity of closing the account either immediately or gradually, and thereby avoid an otherwise inevitable loss. MISCELLANEOUS SOURCES OF INFORMATION Among the miscellaneous sources are to be listed corporation manuals and rating books, corporation cards and similar services, the "Credit Man's Diary," and trade and financial papers and magazines. Corporation Manuals.-Concerns which deal with railroads, public utilities, or industrial corporations of some size will find important and valuable data in the manuals. The three most important and best known manuals are Poor's, Moody's, and the "Manual of Statistics." Although published primarily for the benefit of banking institutions, brokerage houses, and individuals who invest in the securities of large corporations, the credit manager will nevertheless find them highly valuable from his standpoint as will be readily seen from their contents. Poor's "Manual of Railroads" has been published since 1867. It comprises statements of all railroads in the United States and Canada and the principal railroads of Mexico, Cuba, and Central America. All roads are arranged alphabetically and in each instance the following points are contained: a detailed account of the company's mileage; its history or antecedents; the most recent available income account and comparative balance sheet; traffic statistics; capital expenditures; a detailed description of the corporate securities; a list of officers and directors; and the location of the general or main office. The other two sections of Poor's and Moody's Manuals now appear in consolidated form, published by the Poor Publishing Company. One of these sections deals with industrial corporations, the other with public utilities. Both contain antecedents, extent of operations, the most recent available income account and single or comparative balance sheet, detailed description of the company's securities, its dividend record, and names of officers and directors. The "Manual of Statistics," published by the Commercial Newspaper Company since about 1878, contains descriptions of leading corporations, including all essential financial and operating data. In addition, it contains information and statistics on railroads, coal, iron and steel, metal industries, cotton, grain and provision; also statistics on bank clearings and the money market. For convenience to the user, the "Manual of Statistics" is divided into sections. All corporate descriptions are thus classified as industrial, mercantile, financial, public utilities, and transportation. The financial section includes investment and trading corporations. In the transportation section are included railroads, steamship companies, pipe lines, terminals, and express companies. The contents of the "Manual of Statistics" differ somewhat from those of the other two manuals described. It includes antecedents, capitalization, complete dividend record, comparative condensed income account for several years so as to show a corporation's growth and earning power over a period of about 10 years wherever possible; also a comparative balance sheet, list of officers and directors, main office, and range of market prices of its securities, if listed on an important stock exchange, giving the high and low points for several years past. This manual, not unlike the others, is extremely useful as a medium for checking up a corporation's credit standing, and for determining the status of its securities. Corporation Rating Books. In addition to his manuals, John Moody has published since 1909 "Rating Books," in four parts or volumes. Part One deals with steam railroads; Part Two covers industrial investments; Part Three, public utility investments; and Part Four deals with Government and municipal investments. The section on industrials is particularly valuable to credit managers. It contains statements of practically all corporations of importance in which there is any investment interest whatever. In addition to the information contained in the manuals, it furnishes tables containing dividend and security price records and ratings, and amount of working capital. Where a complete analysis could not be presented because of an inadequacy in figures, all available facts are cited without any attempt to analyze them. One or more of these four volumes may be subscribed for at any given time. The rating book service calls for monthly supplements of rating revisions and new ratings. Subscribers are also entitled to the bulletins of current earnings which are issued periodically. The rating books can be obtained at $20 each. Corporation Cards and Other Services. Some publishing houses issue information of substantial similarity to that contained in the manuals in card form. Thus, the Standard Statistics Company furnishes its subscribers two cards on each corporation, one containing practically the same information as the manuals, whereas the other includes data of a more recent character, such as monthly income accounts, current reports and rumors, of a material bearing, concerning the corporation in question. Accordingly, as new reports come out, new cards are issued. Some publishing houses also furnish a cabinet in which the cards are filed. If a person does not desire the complete service, he may still obtain cards on individual corporations. Services somewhat similar to that just described are also furnished by Babson, Brookmire, Prentice-Hall, Moody, and others. |