H^U (5OIU90 of S^gticulturc 3^t Cftarnell IniwerHitB atljara, 51. 1. HF 5566.A8""^" ""'""""' ""'^'^ ^'',^„^f^,!;,=!?.?:.ae account, prepared under 3 1924 013 767 698 The original of tiiis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924013767698 THE RETAIL CHARGE ACCOUNT Prepared Under the Direction of THE Educational Committee of THE ASSOCIATED RETAIL CREDIT MEN OF NEW YORK CITY, INC. FREDERICK W. WALTER EDITOR NEW YORK THE RONALD PRESS COMPANY 1922 Copyright, 1922, by The Ronald Press Company All Rights Reserved PREFACE The problem of granting credit must be faced by every retailer, large or small, that is to say, by everyone who sells either merchandise or service directly to the consumer. It is a significant fact that while many small retailers regard credit sales with great disfavor and as something to be avoided so far as possible, nearly all whose operations are extensive find their charge trade a most valuable part of their business, even endeavoring where possible to convert their cash patrons into charge patrons. The exceptions to this rule among large stores are so rare as to create comment. If the large stores of the country not only do a charge business but encourage it, it seems fair to assume that the small dealer might very profitably investigate the credit policies and methods of the large concern with a view to applying them to his own business. Indeed, not only those who supply commodi- ties but the professional and technical man as well would do well to become thoroughly acquainted with the theory and practice of retail credits and collections as developed in ex- perienced credit departments. This book describes in detail the methods developed by the credit departments of a number of large city stores in handling the specific problems that come before them. It is based on the practical experience of the credit managers of New York's leading stores and consists of their contributions as delivered in lecture form before the Associated Retail Credit Men of New York City with a membership embracing over 600 leading retailers and bankers. The origin of these lectures was as follows : In October, 1919, the Associated Retail Credit Men of New York City IV PREFACE decided to present to their members a series of papers touching on all phases of the retail charge account as handled today in large stores. Each topic was assigned to someone whose ex- perience seemed to qualify him especially to handle it, and each paper was followed by a general discussion in which every point covered was taken up with helpful frankness. The program as planned was carried through during the seasons of 1919-1920 and 1 920- 1 92 1 by the educational committee of the Association. The care and thoroughness with which the topics were handled aroused so much interest that the Association assigned the committee the further task of working up in book form the fresh and valuable material brought out in the course of the investigation, and thus making it available to a wider circle. The present volume is the result. This volume is presented in the confident belief that the principles and methods here described will prove interesting and profitable not only to the fraternity of credit managers and the members of their staffs but to all those concerned in a responsible way with the work of retailing. Associated Retail Credit Men of New York City, Inc. March 15, 1922 CONTRIBUTORS Joseph B. Atjerbach Credit Manager, Bloomingdale Brothers, Inc. Curtis J. Beard Cashier, New Netherland Bank Percy R. Bowers Credit Manager, The Aeolian Company John M. Connolly Secretary Associated Retail Credit Men of New York City, Inc., and General Manager Reference Clearance Bureau Thomas V. Gotjld Credit Manager, Oppenheim Collins and Company, Brook- lyn Herbert L. Taylor Instalment Department, Bloomingdale Brothers, Inc. William H. J. Taylor Credit Manager, Franklin Simon and Company Edward Thompson Credit Manager, Saks and Company Charles H. Travers Credit Manager, Bonwit Teller and Company Frederick W. Walter Credit Manager, Gimbel Brothers George Waterpord Credit Manager, Best and Company Arthur L. Zaduk Credit Manager, Henri Bendel, Inc. CONTENTS Chapter Page I Credit-Granting — Advantages and Problems .... 3 Retail Credit and Wholesale Credit Old View of Credit-Granting Modern View Reasons for Granting Credit Indirect Benefits of Credit-Granting Nature of Credit Frequently Misunderstood Training the Customer II The Credit Department and the Credit Manager . 9 Place of the Credit Department in the Organization Attitude of Management Towards Credit Department The Credit Department as a Source of Good-Will Necessity for Co-operation Between Management and Credit Manager Qualities of a Good Credit Manager Competent Subordinates Strategic Points in the Credit Department Training the Subordinate Keeping Up with New Ideas III Opening the Account 17 Classification of Accounts Personal Accounts — i. Regular Accounts — Credit Informa- tion I. (a) Full Name I. (b) Residence I. (c) Age I. (d) Business I. (e) Business Address I. (f) Bank I. (g) References I. (h) Signature 1. (i) Personal Impression Credit Risks Guaranty of Account 2. Deferred Payment Accounts 3. Instalment Accounts Business Accounts — i. Business or Firm Accounts 2. Hotel Accounts 3. Contract or Government Accounts 4. Dressmaker and Similar Accounts viii CONTENTS Chapter Page Notifying Applicant Other Methods of Obtaining Accounts Mechanism of Office Records Retail Credit Men's Association IV Closing the Account • 39 Closed Accounts Classified 1. "Slow-Pay" Class — Declining Credit Various Instances of Slow-Pay Educating the Customer 2. Unfavorable Information 3. Unprofitable Accounts 4. Unsatisfactory Dealings Retaining Customer's Good-Will Reopening an Account V Authorizing the Charge 53 Importance of Accurate Authorizing Centralized Control Impracticable Work of Authorizing 1. The Sales Check 2. Means of Identification 3. Transmitting the Check to be O K'd 4. Means of O K'ing the Charge 5. Charge-Takes 6. Slight Irregularities 7. Authority of Authorizers 8. Restricted Accounts 9. Reserving the Charge ID. Changing Instructions on Accounts 11. No- Account Charges 12. Charges in Error 13. C.O.D. in Error 14. Authorizers' Records Mechanical Systems Used in Authorizing Sales Checks Comparison of Mechanical Systems The Pneumatic Tube System Electric Phone System Two Types of Electric Credit Systems "Direct Call" and "Selective" Type Systems VI Limits and Oveelimits 76 Assignment of Limits Restricting Individual Purchases Collection Department Record Revision of Records Line of Another House as Basis for Judgment Authorizers' Errors CONTENTS IX Chapter Page VII Collections , 84 "Going After Money Due" The Relation of Collections to Capital Qualifications of the Collection Manager Patience and Courage Value of Accounting The Collector as a Correspondent Advantages of Law Co-operation Between the Credit and Collection Depart- ments Complaint Department The Outside Collector Classification of Debtors 1. Prompt-Pay 2. Slow-Pay 3. Bad-Pay 4. Won't-Pay or Judgment-Proof Collection Systems The Overdue Account Value of Follow-Up Part Payments Attorneys and Legal Proceedings Settling Claims Out of Court Collection Letters and Correspondence Avoid Excuses Form Letters Taking Advantage of Local Conditions Conclusion VIII Suspense and Profit and Loss Accounts 109 "Annual Bad News'' Segregation of Poor Accounts Records on Suspense Accounts Time-Saving Device Collection Efiforts Legal Aid Charging Off Bad Debts' IX Instalment Accounts 116 Handling Instalment Accounts Information on Instalment Application Form Terms of Payment Minimum Amount for Initial Payment Recording Contracts Insurance Collection System Grouping of Customers Based on Nature of Their Business Classification According to References Key System X CONTENTS Chapter Page Writing Letters Place of Payment Enforcing Payment Interest Charge Methods of Charging Interest Gauging Efficiency of Collection Department Reports to Credit Manager X Customers' Business and Personal Troubles .... 138 Clipping Bureau I. (a) Suits I. (b) Judgments Advantages of Recording Judgments I. (c) Foreclosures 1. (d) Bankruptcy Forms of Bankruptcy Abuses of Bankruptcy Law Objections to Present Bankruptcy Law Neglect of Creditors to Press Claims 2. (a) Separations and Divorces Alimony Liability of Husbands Purchase of Reasonable Necessaries Different Statutes in Various States 2. (b) Deaths 3. Bad Checks Different Classes of Bad Checks The New York Law Defects of the Law XI Credit Office Efficiency Methods 154 Efficiency Defined Selling Service Qualifications of Application Clerk Handling of the Application Visible System of Filing Names Recording Customers' Purchases Visible Records for Authorizers Visible Card Index System Misspelled Names Elasticity of System Double-Column Cabinet Drawers Tickler System Following Up Instalment Accounts Address Changes The Telautograph Automatic Typewriter Premature Sending of Collection Letters Co-operative Spirit of Workers CONTENTS XI Chapter Page XII Bookkeeping Department Methods . 173 Old Method of Listing and Billing Eliminating Congestion Mechanical Accounting Dual Plan of Accounting Handling Cash Vouchers Posting the Books Work of Billing Automatic Proving Trial Balances Errors Reduced to a Minimum Advantages of Dual System Larger Output Keeping Other Departments Informed Credit Manager as Head of Bookkeeping Department XIII Returned Goods Evil and Discount Policy 193 Abuse of the Return Privilege Change Since the War Customers Who Return Goods Effect of Returned Merchandise Good Reasons for Returning Goods Evils of Returned Goods Privilege Guarding Against Abuse of the Returned Goods Privilege Discount Policy Arguments Against Discount-Giving The Purchasing Agent Discount Associations Discount to Employees Remedy for Discount Evil XIV Business-Building . . 207 Broader View of Credit Man's Function Corresponding Ability Necessary Developing Good-Will Inactive Accounts Soliciting Accounts Mailing Lists of Prospective Customers 1. Cash and C.O.D. Patronage 2. Directories 3. Newspapers 4. Customers Who Pay by Check 5. Inactive Accounts 6. Other Special Sources Checking of Mailing List Procedure Automatic Handling Replies Statistics on Soliciting Work Systematic Planning of Campaign Feminine Psychology Xll CONTENTS Chapter Page Points of Appeal Soliciting by Mail Other Methods of Soliciting Cost of Solicitation Credit Man as Builder of Business XV Credit Co-operation Between Banker and Retailer 229 Banks as Retail Credit Grantors Inquiries Made of Banks Methods of Getting Information Mail Inquiries Phone Inquiries Inquiries by Telegram Inquiries by Messenger or Runner Construing Bank Replies Importance of Caution in Bank Replies Certified Checks Co-operation Between Bank and Retailer Clearance Bureaus The Spirit of Co-operation XVI Financing Accounts Through the Bank 244 Difference Between Charge and Instalment Accounts The Instalment Account as a Business-Getter The Retail Trade Acceptance Analysis of the Retail Trade Acceptance Advantages of the Retail Trade Acceptance Appendix — The Reference Clearance Bureau 251 LIST OF ILLUSTRATIONS Figure Page 1. Application for Charge Account i8 2. Acknowledgment Card 28 3. Simple Form of Folder for Account Record 34 4. Detail Folder for Account Record 35, 36 5. Inspector's Voucher 63 6. Form for Passing Instructions to Authorizers 64 7. General View of Belt Type Control Desk 71 8. Authorizer's Telephone Switchboard 72 9. Stamping Perforating Telephone Unit 72 ID. Charge Sales Slip Perforated by Charge Phone Device 73 1 1. Collection Record 80 12. Tube Design — Visible Filing System 161 13. Flat-Drawer Visible Filing System 163 14. Geographical or Location File 164 15. Ledger Sheet Used in Dual Plan Mechanical Bookkeeping... 178 16. Tally Made by Bookkeeping Machine in Dual Plan Mechani- cal Bookkeeping 179 17. Customer's Bill Used in Dual Plan Mechanical Bookkeeping.. 181 18. Tally Made by Billing Machine in Dual Plan Mechanical Bookkeeping 182 19. Application Card Sent in Solicitation Campaign 217 20. Inquiry Blank to be Sent to Banks 231, 232 21. Form for Report on Credit Applicant Sent to Reference Clear- ance Bureau 253 22. Form for Report to the Reference Clearance Bureau When an Account Is Closed 254 23. Form Showing Information Sent to Non-Members of the Bureau 256 24. Form Used in Reporting Change of Address or New Accounts Not Cleared through the Bureau 257 25. Form Used in Clearing a Reference 258 xui The Retail Charge Account CHAPTER I CREDIT-GRANTING— ADVANTAGES AND PROBLEMS Retail Credit and Wholesale Credit Retail credit is primarily a shopping convenience. It is unlike wholesale credit, which usually is extended on the assumption that the buyer will sell the merchandise and after- wards pay the wholesaler out of the proceeds. The retail store consents to charge purchases merely as an accommodation to its customers so that they may be saved the necessity of making payment at counters and at the time of delivery. For this accommodation the retailer makes no extra charge, wherea^ the wholesaler has a cash price and a credit price and when goods are sold for cash he allows a certain percentage off the purchase price. This book deals only with retail credit granting. Old View of Credit-Granting On the subject of credit-granting in general there has been in modern times a great change in opinion. As far back as biblical days, for instance, and down to very recent times it was held that the giving of credit might be commended on religious or charitable grounds but that it was "poor business" and involved grave risks and disadvantages. This old attitude is typified by the following passage from the book of Ecclesiasticus : Lend to thy neighbour in time of his need; and pay thou thy neighbour again in due season. Confirm thy word, and keep faith with him; and at all seasons thou shalt find what thou needest. 4 THE RETAIL CHARGE ACCOUNT Many have reckoned a loan as a windfall, and have given trouble to those that helped them. Till he hath received, he will kiss a man's hands; and for his neighbour's money he will speak submissly; but when payment is due, he will prolong the time, and return words of heaviness, and complain of the times. If he prevail, he shall hardly receive the half, and he will count it as a windfall; if not, he hath deprived him of his money, and he hath gotten him for an enemy without cause; he will pay him with cursings and railings, and for honour he will pay him disgrace. . . . Suretiship hath undone many that were prospering, and shaken them as a wave of the sea; mighty men hath it driven from their homes, and they wandered among strange nations. Modern View Nowadays, far from believing that the giving of credit is a danger and disadvantage the merchant holds just the opposite — he beHeves that credit-granting confers positive benefits, and instead of seeking to avoid it he goes out of his way and spends considerable time and trouble to grant credit widely. In fact the complexities of present-day endeavors positively necessitate the employment of credit in one form or another — without it hardly an operation of modern civilized existence would be possible. And at the bottom of it all is the personal equation, the trust that the customer will keep his word. The extent of that trust on the part of the seller is practically the only limit on the granting of credit. If he is given good reason to believe that the customer will pay, there are hardly any bounds to the credit the seller will grant. This is the credit grantor's chief task — to find out the customer's character for willingness and ability to pay. Reasons for Granting Credit From the point of view of the store the reasons for giving credit are various. Merchandise on the shelves or behind the counters does not pay bills or declare dividends. "Do you keep CREDIT-GRANTING 5 toothbrushes?" "No, sell them," has as much sense as humor in it. No matter how much merchandise the merchant sells for cash, and no matter how desirable this class of business may be, there is always room for more. This extra business is provided for by the charge sales and should be encouraged if for no other reason than that it is a remarkably efficient fly- wheel for the machinery of the business. In dull times it is known that the percentage of falling off in business is not so great for charge sales as for cash trans- actions. It has also been observed that the charge patron buys more than the cash customer; in some cases in the ratio of three to one. That is, while the cash customer spends $i for an article, the charge customer will spend $3. Of course it doesn't cost the store any more to sell $3 worth of merchandise than it does to sell $1 worth. It is, therefore, good business to provide every convenience and every accommodation for good customers. Indirect Benefits of Credit-Granting Retail buying and selling as it is practiced today offers a wonderful field for the education of the customer of a store by means of a charge account ; the charge account also, in addition to its primary merit as a business-builder, is a source of many indirect benefits to the store. The charge patron is permanently on the books of the shop and her name is readily accessible for all kinds of advertising. Customs of the trade can be more easily explained, faulty and harmful habits can be corrected and eliminated with less delay and less possibility of misunder- standing, and the trend of buying can be more correctly and easily gauged, because there are adequate records of all trans- actions. Where the credit risks are wisely selected and the credit extended in a rational manner, the payment of bills according to agreement may usually be expected in full with but a 6 THE RETAIL CHARGE ACCOUNT minimum of effort. One of the essential facts which it is highly desirable to impress upon customers is that credit, their credit, is just exactly what they make it. Nature of Credit Frequently Misunderstood Too often the real meaning of the term "credit" is not fully understood by the customer. Not long ago a woman came into the office of a certain firm with which she had had an account for several years and stated that she was moving to another city and wished the account closed. In a pause in the conversa- tion she remarked that she wondered what she would do for credit when she got to her new home. Doubtless she had memories of having been put through the third degree when she opened her first account, not realizing that she had been subjected to inquiry and investigation simply because she had no established credit at the time. It was explained to her that by reason of the fact that she had paid her bills so promptly and had returned so few of her selections she was in excellent credit standing with her present store. The names of several high-grade houses in the city to which she was about to go were given her with the sug- gestion that when she was ready to open a new account with any of them she would have that particular store communicate with the credit manager of her old store who would be very glad to give the necessary information to assist her in estab- lishing her credit. This idea had never occurred to her and she seemed more than grateful for the suggestion. Again, there is the case of the man who has always confined his purchases to cash and has never had occasion to establish a credit. He has always bought wisely, has been reasonable in his demands for adjustments, but for all that has been only a cash customer. One day he requires a complete outfit for his home and asks that the goods be sent on approval, standing ready, if they are satisfactory, to pay his bill in full. Much CREDIT-GRANTING 7, to his surprise he is told that, as he has no credit standing, he will have to give references and such other information about himself as will enable the store to pass intelligently upon his application. After some explanation this is readily done and the goods sent out and in due course paid for. As a result the man afterwards always charges his purchases. He sees to it that his bills are promptly paid, and by this means he can get whatever he wants whenever he wants it. There is, too, another class of customer with mistaken ideas of credit who is allowed to open an account because he has given the store to understand that his bills will be settled monthly. Two or three months pass and no payment appears. After some correspondence the delinquent customer is finally written to rather sharply, and he immediately takes offense. He says his credit is perfectly good and there is no reason for pushing him for settlement. Or, perhaps, he makes small pay- ments on the account, dragging out the bill for an unreasonable period. In such cases it is often a question of giving the customer a correct view of the situation, as he is really sincere in his statements and is "slow pay" simply because he does not understand the necessity for prompt payment of retail bills. Of course, sometimes it is a question of "won't pay" or "can't pay," and then it means trouble for the credit department. Training the Customer Patrons must be trained to understand that once having given their promise to pay according to certain terms, any un- explained deviation from these arrangements is a "breach of promise." Those whose word cannot be relied upon, either because of inability or disinclination to pay, should not be entrusted with merchandise. It is one of the problems of the credit department to get new charge customers and then keep them. The mere matter of buying has in modern times taken on a new aspect and the 8 THE RETAIL CHARGE ACCOUNT Store is now in a different and better position to treat with its patrons than in the past. By the proper use of credit machinery there is no doubt that stores can train customers into new and better ways of buying, thus cultivating and maintaining their confidence and good-will. This should be the great object whenever credit is granted. CHAPTER II THE CREDIT DEPARTMENT AND THE CREDIT MANAGER Place of the Credit Department in the Organization It has been shown how vital a factor credit is in retail transactions. The greatest benefits for the store can be obtained by the extension of credit in a safe and scientific manner, and it is fair to assume therefore that the credit department should hold a very important position in the business affairs of the store which sells goods on a credit basis. As a matter of fact in many establishments the percentage of charge business is as high as 90 per cent of the total sales, the average running somewhere between 40 and 50 per cent, and usually this class of trade represents the better class of patrons. Therefore it is easy to see how important the credit department is to a firm. Retail business today has become so complex that in the majority of instances the credit manager does not come into personal contact with his customers — the rules and regulations he lays down for the conduct of his department must be ex- ecuted by his assistants. This means that an effective credit organization must be created with the credit manager as the chief executive and controlling spirit. But besides a good credit organization, it is absolutely essential, if the credit department is to be the complete success that it should be, that it receive full co-operation from the other departments of the store, as well as from the management itself. It is absolutely imperative that the management, once having secured an efficient and capable man as credit manager, should give him 10 THE RETAIL CHARGE ACCOUNT complete authority and make him solely responsible for all matters pertaining to his department. He should have no superior, and the only limits to his freedom of action should be the general policy of the house. Attitude of Management Towards Credit Department The statements just made, coming as they do from a credit manager, may seem biased, and indeed there was a time when the credit man was compelled to argue quite vigorously to defend his very existence. Today, however, the importance of the credit man's position is recognized by the owners of large establishments who have given much study and thought to his place in the business. The managements of stores have been made to realize that the credit department means more to them than they formerly believed. As a sample of what should be the attitude of management toward the credit department Victor W. Sincere, secretary and general manager of the Bailey Company, Cleveland, Ohio, has this to say : Credit is a valuable franchise, without which it would be impossible, under our present economic plan, to conduct busi- ness. There is no stage in transactions involving either mer- chandise or money at which credit is not employed, and no business enterprise can attain its greatest success unless it has a well-established credit standing with the mercantile and banking world. Whatever applies to credit in business generally applies in the same measure and degree to credit extended by the retailer to the consumer. Through processes of education the consumer has been gradually brought to regard credit as a valuable fran- chise and to use it with the same discretion as it is used in business at large. That consumer has prospered to the greatest extent who has taken a businesslike view of credits and estab- lished a personal reputation similar to that acquired by a sub- stantial business house with which an unquestionable credit standing is a matter of prime importance. CREDIT DEPARTMENT AND CREDIT MANAGER II The Credit Department as a Source of Good-Will The value of the retailer's credit business with the consumer cannot be questioned, any more than can the credit business of the wholesaler with the retailer. The credit relationship estab- lished between the retailer and his creditor has enabled the latter to build up a vast business ; likewise the credit relationship between the retailer and the consumer has been a great factor in the development in the United States of large retail establish- ments. More scientific methods have in many stores caused the credit business to exceed the cash business. This, of itself, should largely prove the value of the consumer's credit patronage. The "management" in the retail business should consider the credit department as an active, productive department — one to which a large portion of the good will of the store should be delegated — because in this department either the greatest good can be accomplished or the greatest ill-will can be established. There should be the closest co-operation between the firm and the credit department, and particularly the credit manager, upon whom falls the responsibility for the proper conduct of this important department. Necessity for Co-operation Between Management and Credit Manager Although the credit manager is not usually a salesman, and although credit is extended for the most part upon the con- sumer's request, nevertheless the manager is constantly selling the reputation of the house with which he is engaged. He should therefore be equipped with every possible means for carrying on his affairs with the utmost efficiency, so as to obtain from his department the highest degree of productivity — not only in increasing the volume of the credit business but in making it practically as safe as cash business. The manager of the credit department should be in con- stant consultation with the firm, both as to the correction of existing evils and the promotion and execution of new ideas. He should also have such standing with the firm as to increase its responsibilities and add to its importance. The firm should realize, as many concerns actually do, that accounts receivable 12 THE RETAIL CHARGE ACCOUNT represent a large proportion of its assets, and that lack of sym- pathy and understanding between itself and the credit manager may mean a depreciation of those assets beyond the possibility of repair. The firm should have the utmost confidence in the credit manager. It should feel that he will not, knowingly, dispose of merchandise without thorough investigation. The credit manager, on his part, should have a corresponding feeling of confidence in the firm, which should encourage him to the use of his best judgment in the conduct of his department. My advice to any firm which employs a credit department is that they should have constant contact with the department and its manager; that they should study its problems often and thoroughly; and that they should believe in it and give it just as much attention as they give any merchandise-sellijjg department in the store. The greater the effort to keep credit on a high plane, the greater will be the returns for all concerned — the consumer, the credit manager, and the firm. Qualities of a Good Credit Manager From what has been said above, the important bearing which the credit department has on the fortunes of a firm is manifest; and in turn the success or failure of the credit department is based largely on what kind of man is at its head. What are the qualities that go to make a good credit manager ? In a certain large eastern department store a chart is dis- played bearing the following legend : All positions in this store must be held in three capacities. The holder must be — 1. The man on the job. 2. The candidate for the job ahead. 3. The teacher of the man under him. That tells the whole story in a nutshell. The credit man must be the leader of his organization. He must hold himself ready for greater responsibilities. He must also see to it that CREDIT DEPARTMENT AND CREDIT MANAGER I3 those under him are trained for immediate advancement. This seems perfectly simple, and is one of the first principles of good office management. And yet a little investigation will show that there are many credit men who do not operate their departments on this basis. Some are afraid their assistants will get to know as much about the department as they them- selves. Possibly they fear they will be "shown up," so to speak. Competent Subordinates To have in charge of a credit department a man who is either fearful or unwilling to teach those under him is, of course, a great detriment not only to the department but to the entire organization. Initiative is blighted, interest is dis- couraged, and as a result the work itself is carelessly done and subordinates seek the first opportunity to make other connec- tions. But the worst feature of the sitifeition is this : If the head of the credit department fails to give the men under him adequate training, a great part of his time will be taken up with petty details which should be delegated to subordinates compe- tent to look after them and upon whom can be placed full re- sponsibility for them. In view of the delicacy of credit transactions and the ex- treme care and open-mindness with which every procedure must be handled and every duty approached, it can be readily seen that the assistants and clerks in a credit office should be of the highest cahber obtainable; and from the point of view of the subordinate himself it may be safely said that there is no kind of work which ofifers such opportunities for mental growth and business training as a properly organized and simply functioning retail credit office. Strategic Points in the Credit Department The credit manager should have an assistant upon whom he can depend and to whom he can entrust the management of 14 THE RETAIL CHARGE ACCOUNT the office without any fear that his good work will be destroyed, and this for several reasons. For one thing the credit manager cannot always be ' in the office, and when he is absent, the store's business must go on just the same — customers cannot be expected to wait until the credit manager returns to have their credit needs passed upon. Then, again, there is always the possibility of the illness or death of the credit manager or his removal because of business changes, and in such event other members of the staff should be given the opportunity of advancement. For such advancement, however, it is essential that they should first be fully prepared and trained. Besides the post of the assistant credit m'anager there afe' certain other strategic points in the organization which must be fully protected at all times. For example, the position of the clerk who takes the applications is very important, as are likewise the position'^ of the chief authorizer and the chief refer clerk. The collection manager also has a most important post, for upon the interest which he takes in his work and his ability to read between the lines and judge intelligently the promises of his delinquent customers, upon his diplomacy and shrewdness, hinges the successful conduct of the collection department and the credit office as a whole. There are a number of other minor positions which must be carefully filled if the credit manager would have his depart- ment function with the least amount of friction. The clerk who follows up the applications for accounts and compiles all the information which is brought in, the clerk who writes out the accounts in the indexes, the clerk who answers credit references, the clerk who telephones customers regarding changes of address, questionable purchases, or the hundred and one things that come up in the course of the day — all of these people must be selected with the greatest care. In short, the credit manager must have the best obtainable tools with which to work, and the higher the quality of these human CREDIT DEPARTMENT AND CREDIT MANAGER 15 tools, that is, the more education and character they have, the better. Training the Subordinate In addition to his duties as a business executive the credit manager must also be a close observer of the personalities with vi^hich he comes in daily contact. Whenever possible, every clerk must be selected for his potential possibilities with the idea of promoting him when the proper occasion presents itself. The clerk who receives applications for accounts should early be trained to judge the account; as he receives the information from the prospective customer, he should be required to render his own judgment as to whether or not the account should be accepted. As a matter of fact a great many leading establishments have worked out an arrangement of secondary or divisional credit men, to whom certain letters of the alphabet are assigned, all transactions pertaining to the customers whose names fall in the various alphabetical groups being handled by the respec- tive divisional men as completely as if the credit manager him- self were doing the work. Applications are received, accounts opened or closed, and limits assigned, subject to review only by the credit manager. In this way a feeling of responsibility is developed in the credit force, and at the same time the ■credit manager is relieved of a great deal of detail work. Should one of these divisional credit men leave for any reason the clerks in the ofiSce, being well trained, are ready for just such an emergency and are advanced to fill the gap, and thus -the work of the department continues without interruption. , Junior clerks frequently display unexpected ability, and if given the chance . develop into dependable assistants. Praise judiciously bestowed has wonderful tonic qualities, and censure properly administered has produced most desirable results ; and the credit manager should be skilful in dealing out both. - In 1 6 THE RETAIL CHARGE ACCOUNT selecting a junior clerk for promotion the credit manager should give careful consideration to the education and home training of the individual. A fair amount of schooling coupled with the beneficent effects of a refined home gives the best assurance of success. Keeping Up with New Ideas Like the leaders in other lines of endeavor, the successful credit man must keep in touch with the latest and most valuable developments in his field. He should be constantly on the look- out for new ideas ; and for the purpose of acquiring them not only should he acquaint himself with the methods practiced by the leading establishments of his own city but he ought to make frequent visits to other cities as well. One of the best means at the disposal of the wide-awake credit man who wishes to keep abreast of the most progressive thought in credit-granting is an active interest in a credit or- ganization. If there is none in the town in which he lives, he ought to help form such a body. It will be found worth while, too, if he will make it a point to attend the credit men's con- ventions. Some credit organizations, realizing the fact that it is not always feasible for the credit man to attend all national conventions, have arranged for state or group meetings. These meetings have been most helpful to all who participated, for knowledge not alone of facts and figures, but knowledge of his colleagues who labor under the same strain as he himself is a great asset to the credit man. Moreover, personal friend- ships of incalculable value have resulted from these gatherings. That credit man would be very unwise who shut himself oflF from contact with those who are in a position to help him or who may be in need of his counsel and suggestions. CHAPTER III OPENING THE ACCOUNT Classification of Accounts Customers' accounts of a retail business can be divided into two general classes, personal and business. These, in turn, are subdivided into three and four groups, respectively, as follows : Personal accounts : 1. Regular accounts 2. Deferred payment accounts 3. Instalment accounts Business accounts: 1. Business or firm accounts 2. Hotel accounts 3. Contract or government accounts 4. Dressmaker and other similar accounts Personal Accounts — i. Regular Accounts — Credit Information In handling applications (Figure i) for regular or personal charge accounts the credit manager must have definite informa- tion concerning the applicants. This information bears on the following nine points : (a) Full name (b) Residence (c) Age (d) Business (e) Business address (f) Bank (g) References (h) Signature (i) Personal impression a 17 i8 THE RETAIL CHARGE ACCOUNT Sinclair Brothers APPLICATION FOR ACCOUNT 0*TF_ NO Residence . Temporary Address Business Business Add. Bank ll u understood that if the account u opened, bills will be paid promptly each month. SIGNATURE. REFERENCES Firm Account -Opened Highest Credit Payments LiMiT Figure i . Application for Charge account. (Size 5 x 7.) OPENING THE ACCOUNT 19 I. (a) Full Name A retail store must be given the customer's full name, i.e., the first name in full as well as the last. The reason for this is that many applications for charge accounts are made out in such abbreviated forms as "A. B. Jones," "A. Smith," and the like, with the result that the name may be easily confused with others, often occasioning not only embarrassment but loss as well. Another reason for requiring the full name of an applicant is because the first name often reveals the nationality of a person, and this is an important item of information to the credit grantor. Changes of name, whether made by authority of the court or by the individual himself, should be closely scrutinized, and for this reason also initials alone should never be accepted. Moreover, the full name indicates whether the account is to be in the name of the husband or wife. Inasmuch as experience shows that the majority of customers' accounts with retail stores are opened on the strength of the husband's credit and then only for necessaries and clothing, according to the scale of living which might be expected from the prospective customer, great care should be taken to obtain the husband's full name. It is of vital importance to know the extent of the husband's responsibility in the account, as can be seen by referring to two famous cases — Wanamaker v. Weaver (176 N. Y. 75), and Altman v. Durland (185 App. Div. 114). In a recent case (Ryon v. Wanamaker, et al.) the Supreme Court, Brooklyn, N. Y., ruled that a husband is not responsible for debts con- tracted by his wife individually, even though she has used the prefix "Mrs." From these court decisions it would seem that some form of notice must be served on the husband that an account is being opened in his name, thus giving him an opportunity to confirm or decline the proposed arrangement. 20 THE RETAIL CHARGE ACCOUNT Where a woman with an account marries, it is essential to know her new financial status, as the account may not be as desirable as before the marriage. Frequently a woman requests that the account be changed to her maiden name. This should at once occasion the most careful scrutiny, as alimonies and separation settlements have a habit of going into the discard. I. (b) Residence In addition to the full name, the retail store must also have the complete local address of a would-be customer. If an applicant for an account is a newcomer to town or a temporary visitor it is well to obtain both his full home address and his temporary address in the city. In addition, some idea should be secured as to the probable length of his stay in town-, so that if any question arises regarding a transaction on the account, the credit office may be able to get in touch with the customer with the least possible delay. Some of the above points are self-evident and would not deserve mention if it were not for the fact that time and time again applications are lacking in just these particular essentials. Customers move from one city to another, giving as references other stores which are not acquainted with their last addresses. When the references are communicated with, the replies come back "No account." Customers stopping temporarily at a local hotel sometimes neglect to state that their purchases are to be sent to a hotel and not a permanent residence, and it is always an eleventh-hour delivery which makes a credit manager wish that his assistant had kept his wits about him and obtained this small but very important bit of informa- tion. The locality of the city in which the applicant lives, and the property he owns, if any, must be given careful considera- tion. It is a serious situation if he pays excessive rent or owns OPENING THE ACCOUNT 21 a house bought on a top market with its consequent terrific expense. An excellent article on this very point, written by Dr. Charles Paterno, appeared in System for December, 1919. In most of the large cities ample opportunity is afforded for obtaining, at low cost, "last owner cards," which often tell a story quite different from that which the applicant would have the credit manager believe. Wherever possible, this informa- tion should be secured. For out-of-town properties, the neces- sary information can be obtained for a nominal fee from any reliable attorney. Every credit office should be equipped with one of the attorney lists which can be consulted more than once to advantage. The attorney, however, should not be expected to give a credit report on an individual or on a property search for the price of a self -addressed return envelope. I. (c) Age If any doubt exists as to the legal age of the applicant, direct inquiry should be made. If he is a minor, consent of the parents or a written guaranty from them or from some other responsible person should be secured before the charges are approved. The method of handling accounts with young men or young women in boarding schools, who send in their orders directly to some specialty house or give their orders on the ground to a traveling representative and direct that the bill be charged to father is another problem. Very frequently father does not appreciate the dignity thrust upon him, and many an office has had a great deal of unpleasant correspondence as the result of such unauthorized charges. Minors also sometimes have the habit of running up bills for articles disallowed by their parents or guardians and they may or may not — generally not — confirm these transactions on becoming of age. 22 THE RETAIL CHARGE ACCOUNT I. (d) Business The full name of the concern with which the applicant is connected or of which he is a member should, of course, be taken. How many times has a credit manager examined an application on which there appeared, in the "Business" column, the phrase "Standard Oil Company" or "Pennsylvania Rail- road" with nothing to show whether the applicant was a porter or the president of the company ? A little forethought on the part of the interviewing clerk would have made the passing on this application a very simple matter. The length of time that an applicant has been connected with his concern has a great bearing on whether or not he should be granted credit. Oftentimes it is necessary to learn what salary the applicant receives, and a good deal of diplomacy is demanded of the credit manager to get this information without causing offense. In many states, so far as city employees are concerned, salaries are a matter of public record and can be readily ascertained. It is a good check on the relia- bility of an applicant who is a city employee to learn whether the statement he makes regarding his salary is true, by con- sulting the city records. At times the applicant for an account balks at giving such detailed information, but it requires a minimum of persuasion to show him or her how necessary it is for the store to have these facts if the accommodation is to be granted, for, when the situation develops to a point where it is necessary to learn the applicant's salary, the credit manager dominates the situation and confers a tremendous favor on the would-be customer in granting the application. I. (e) Business Address It is important to know where the applicant is actually employed. It frequently happens that only a branch office is located in the city where the store is established and that the OPENING THE ACCOUNT 23 main office of the concern in question is in another city ; hence care should always be taken to learn from the applicant his proper business address. Many a time a credit manager has tried in vain to trace a customer who has left a bill for no inconsiderable amount, because he did not know where the applicant's home office was located. When his outside investigator went to the local branch office of the applicant, he was told by the elevator-starter in the building that the home office was any place else but there, and thereupon a still hunt began for this information. A little forethought when the application was accepted would have saved the credit manager this trouble. I. (f) Bank As a general thing the bank reference is of no great impor- tance, being on a par with a savings bank reference. In a majority of cases it simply serves to confirm the applicant's statement that he carries an account with the bank. A state- ment by the bank that the applicant has had a "small account since January, 1919, and never gave us any trouble," means practically nothing from a credit-granting standpoint. At best it is but an evidence of ordinary stability and responsibility on the part of the customer, showing that he is really trying to lay something aside from his income. Of course, when a bank tells the retail store's runner that John Smith has had an account with them for ten years averaging four figures or never less than $5,000, and is satisfactory in every way, the credit manager has something definite to work upon. As intimated, savings banks, from a reference point of view, are of absolutely no value. (See Chapter XV, "Credit Co-operation Between Banker and Retailer.") In the first place, in most instances they give no information except on the written authority of their depositor. Inasmuch as the cus- tomer can have money in the bank today and draw it out thirty 24 THE RETAIL CHARGE ACCOUNT days from today, the word of the savings bank carries no great weight for credit granting purposes, except that, as mentioned before, the possession of a deposit account by a customer evi- dences a degree of thrift and a desire to estabhsh a credit bal- ance instead of continually trying to catch up with his bills. It is, generally speaking, a simple matter to handle city and civil service employees. Where their bill-paying habits are satisfactory the additional protection of being able to garnishee their accounts in case of necessity is to be considered. In such cases, however, occasionally ask your city marshal how many other creditors are ahead of you on the waiting list, and his answer will probably make you careful that bills do not go too high and that they are paid with a little more than usual promptness. I. (g) , References The bank reference has already been touched upon and need not be discussed further. The would-be customer may possibly give the names of other stores with which he has charge accounts, generally, of course, only those with which he is in good standing. From this the importance of a retail clearance bureau to check the applicants' references can be seen at once. The information in the files of such a bureau immediately shows whether or not the application is to be accepted. The applicant very frequently has no accounts with other stores and so must fall back for reference purposes on sub- stantial trades people accounts, which sometimes prove of con- siderable value, not only because of the information they contain but also because of the opportunity they afford of tracing the customer's movements in the event of his disap- pearance. Some patrons point with great pride to the fact that they pay their rent, gas, electricity, and milk bills, without realizing how utterly foolish it is to imagine that promptness in OPENING THE ACCOUNT 25 paying such bills has any weight with the credit manager of a retail store. Very frequently it is necessary to take personal references, but as the applicant naturally gives only those individuals who are favorably disposed to him, names are of little value except to corroborate information and later, if necessary, to assist in locating the customer. Frequently it becomes necessary to ask if reference may be made directly to the employer. The applicant is to be held in the highest regard, who, in opening his first account, tells the credit manager frankly that he has such and such a position with such and such a firm and refers the manager to a responsi- ble officer — not the chief clerk or private secretary — who will give him real information as to the applicant's connection with the firm. Not infrequently an intending customer declines to give any reference whatever and the credit manager is hard put to handle a case of this sort satisfactorily, especially when the person bears every evidence of refinement and seems to be abso- lutely responsible, but is possessed of strange business ideas. The method of handling such cases will vary according to cir- cumstances, but it ought not to be a very difficult matter for a credit manager of any experience to open the customer's mental windows and let in a flood of light. I. (h) Signature A customer's signature is a very important factor in his shopping experience with the establishment. It frequently happens that identification, for one purpose or another, hinges on the customer's handwriting, as evidenced by his signature. This, of course, is entirely apart from the matter of the cus- tomer's signature on sales checks at the time of purchase, which will be discussed in a later chapter. Where the coin system is in vogue it is a simple matter to 26 THE RETAIL CHARGE ACCOUNT ask the customer to sign the card acknowledging the receipt of the coin. It is also easy to have the customer sign the ac- knowledgment blank or card which is especially provided for that purpose, at the time application is made. If any ob- jection is made it is a simple matter to explain that the action is taken to protect the customer's own interests. I. (i) Personal Impression It is impossible, of course, for the credit manager person- ally to interview all applicants for accounts, and it is regretable that he cannot do so. While first impressions are not always accurate, the atmosphere with which the customer surrounds himself in unfolding his personal history creates an impression, either favorable or unfavorable, which the interviewer cannot help but feel. On that account it is wise to train assistants to observe applicants as closely as possible and mark on the application blank a brief summary of the impressions they have gained, as "OK," "Light," "Bears watching," "Unreasonable," or something of the sort. Such a clue is often of tremendous assistance in determining whether or not the account is to be opened. Credit Risks From the standpoint of risk, applications for personal charge accounts may be divided into the following nine classes : 1 . Where a man engaged in a reputable business for him- self, or the wife of such a man, applies for an ac- count and has satisfactory charge accounts in other stores and satisfactory bank connections. This is almost an ideal risk. 2. Practically as good is the case of the man who for a period of years has been connected in a responsible capacity with a reliable, long-established concern. 3. A less satisfactory risk is the small "hole in the wall" OPENING THE ACCOUNT 27 household, with a $100 bank account and friendly references, but giving every evidence of living up to the last cent. 4. Further down the scale is the man who has a minor position with a concern, or the one who holds a good job but is extremely extravagant. 5. Next is the single man who "breezes" into the office, leans over the desk, and says very confidentially, "I want the account just for an accommodation, don't you know," and then proceeds to buy out the store. 6. The single woman, with little or nothing to fall back on in a financial way, follows next. 7. Then come school teachers and other city employees to whom sales are made largely on the strength of their position, because in the event of a forced settle- ment their salaries can always be garnisheed. 8. Professional people, doctors, lawyers, artists, and others, whose income is fairly large, but undependa- ble as to the date of its receipt and who as a class lack to a certain degree the proper sense of financial obligation. 9. Last come separation cases, the most important of which is the woman about to break away from her husband, but who wishes to provide herself first with plenty of clothing at her husband's expense. Frequently the application is not made by the person who will be responsible for the account. In that case the name of the actual applicant should be entered on the application blank and the arrangement confirmed at the earliest possible oppor- tunity with the responsible party. Guaranty of Account It is often necessary to ask for a satisfactory guarantor for the account, or for some other form of security. Measures 28 THE RETAIL CHARGE ACCOUNT should be adopted against the woman who is about to separate from her husband, charging accounts in the latter's name. In some stores it is customary to have women sign a memoran- dum (Figure 2), when applying for an account, that goods are ^ytaae/yd ■am^/' ^DcynUutny^ gentlemen,:- " J^n comidevaCicn c^ •uowi' tactendiMf, ciiecM ib n, Of ta m.^ {AMiiand ) (eo^) ^a^vee (o/uz^ anu iumitkatma ieeotnejuitiu. due on iutA a-ccount. "yemu tmtiu, Jtamatwye Figure 2. Acknowledgment Card. (Size sJ^xsJ^.) to be charged to them directly and that they will be responsible for and will guarantee the payment of the bills, regardless of whether or not their husbands will be involved in the trans- action. In this way a double security is placed on the account, which proves a great protection. 2. Deferred Payment Accounts Deferred payment accounts are those opened for the pur- chase of furniture, rugs, or such other merchandise as the credit manager may see fit to sell, for the payment of which the customer is given three to six months or longer, the goods being secured by a conditional bill of sale or chattel mortgage. Practically the same information is required from the appli- OPENING THE ACCOUNT 29 cant in opening such an account as for the regular charge ac- count, the chief difference being that on account of the security a sale can be made to a woman directly, even though the information about her husband may not be of the best. Interest is generally charged, or a "carrying charge" is levied to cover the cost of this additional accommodation. Only substantial furniture and other non-perishable merchandise are sold on this plan. It is absolutely essential that the full name of the purchaser be obtained, as in the event of a suit it must be determined at once. So also when a conditional sales agree- ment or chattel mortgage is executed it is very necessary for the full name to appear throughout the contract. 3. Instalment Accounts Accounts providing for purchases on the instalment plan present an entirely different problem. The position held by the purchaser in the firm employing him and the length of his service are the bases for determining whether or not credit should be extended. The nationality and residential section in which the purchaser lives are other important factors to be considered. The credit manager must, of course, be certain that the purchaser is of legal age and is under no other dis- ability to enter into legal contracts. Under instalment accounts all sorts of merchandise can be sold, such as sewing machines, phonographs, pianos, vacuum cleaners, etc. Prices on such sales are generally increased to a rather substantial degree over cash prices and in the case of pianos and talking machines interest is either charged on the unpaid balances, or is allowed for in the selling price for the period during which the payments are expected to run. Business Accounts — i. Business or Firm Accounts The correct name of the business or firm which has opened an account must of course be had. It is also advisable to ascer- 30 THE RETAIL CHARGE ACCOUNT tain whether or not a written order must be presented when purchases are made, or authority is granted to some particular individual to make purchases for the concern. Terms of pay- ment and discount must be thoroughly agreed upon. If the applicant is not a well-rated firm, direct reference from banks or from other concerns in the trade from whom purchases are already being made should be secured. The usual agency books, particularly Dun's and Brad- street's, will give all the necessary information required, par- ticularly if a special report is sent for. The amount involved, however, will largely govern the way the transaction is handled. 2. Hotel Accounts A hotel account may be a thing of pleasure, or it may be a thorn in the flesh. Generally it is the latter. Such accounts present a large problem in connection with which many fac- tors must be considered. They can only be treated briefly here. If hotel purchases represent current transactions of a few hundred dollars, it is simply a question of prompt payment and the standing and reliability of the house in the trade. As for larger orders running into thousands of dollars, they must be handled in a special manner. Sales should be made either on a conditional bill of sale or chattel mortgage, or accounts secured by notes or collateral security, or on the guaranty of some other responsible individuals. The new hotel account is a serious problem, particularly nowadays when the abolition of the bar has cut off a lucrative source of revenue and has reduced trade in general. On the other hand, hotels in small towns, road houses, taverns, and their like are, generally speaking, excellent cash customers. 3. Contract or Government Accounts From a credit point of view contract or government ac- counts ought to be the best risks and they generally are. How- OPENING THE ACCOUNT 31 ever, there are so many precautions to be taken in the way of official orders and signatures, and there are so many delays in the collection of the accounts, that credit managers some- times wonder whether they really represent any profit to the concern handling such accounts, except where they are for- tunate enough to be able to swing practically all the business. In such accounts goods are generally sold on a close margin and unless everything moves smoothly the profit is largely reduced. 4. Dressmaker and Similar Accounts Here we have a new element of terms and discount, which will vary according to the concerns making a bid for this class of business. Written orders or written authority for partic- ular individuals to buy must be scrupulously watched in con- nection with these accounts and, as in the case of all the large accounts, such as hotel, contract, and government accounts, the signature of the one to whom merchandise is delivered should be obtained so that there will be no occasion for dispute at a later date. The trade of dressmakers has been seriously interfered with, with the advent of the great quantities of ready-made gowns and dresses, and for this reason the dressmaker's ac- count, together with the milliner's, is generally a source of con- tinual anxiety and care. Notifying Applicant The last step in the negotiations with an applicant is, of course, notifying him that the account has been granted or has been refused. Every house has its own method of im- parting this information. Some are very elaborate and pro- fuse, telling the customer how wise he was in applying for an account and that the phrase "charge it" is the "open sesame" to a storehouse of hidden wonders, and so on and so forth. 32 THE RETAIL CHARGE ACCOUNT Others very prudently confine themselves to a formal, dignified letter, which answers the purpose best, for, after all, what the customer wants to know is merely whether she has obtained the account or not; she does not care much what the ofifice manager has to say about it. Should a credit manager find it necessary to decline an application, he has several ways of notifying the party. He can either write the applicant for more information and pass him along from day to day until he takes the hint, or he can tell her that while her references have said some wonderful things about her, still she cannot come into the fold. Some- times the action precipitates a scene and sometimes everything goes along very smoothly. Other Methods of Obtaining Accounts In addition to opening accounts by direct application from the customer, a great deal of business is gained by granting a customer who comes into the store by mistake, thinking it is another establishment, the convenience of an account after looking her up in the rating book. This seems strange, but credit managers can recall many such instances. One in the experience of the author may be cited. A woman walked into the store, selected $450 worth of furniture, and said that her husband would send a messenger over with a check in pay- ment within an hour. When the check arrived it was found to be drawn to the order of another concern, the woman having been under the impression that she was in the other establish- ment. Very profitable accounts are also opened from large C.O.D. sales or from transactions where a bank check of a fairly substantial amount is given in payment. Careful attention to transactions such as these oftentimes brings very desirable accounts on the store's charge books. The most prolific source of accounts, however, is that of the OPENING THE ACCOUNT 33 commercial agency books used in an intensive campaign of solicitation. No attempt will be made here to discuss the merits of this method of extending business except to say that where a person is already satisfactorily rated in the agency book and the rating is of sufficiently recent date, there is no reason in the world why that person should not be offered an account. There are, of course, those who send canvassers out to the apartment houses with instructions to give accounts only to women who are brunettes, or women between 5 feet and 5 feet, 8 inches in height, and who must not weigh more than 140 pounds. This statement is not an exaggeration at all, as some ludicrous cases brought to the writer's attention showed that a great deal of this sort of reasoning must have been employed. Every well-equipped office has copies of the retail reporting agency books : the Co-Partnership Directory, Dun's, Brad- street's, the Elite Directory, and lists of the regular law re- porting companies. Houses which have branches in other cities can obtain information in urgent cases by telephoning or telegraphing their branches. The coin system has great advantages for the customer. The writer has had customers approach him for some unusua' accommodation, who showed him the coin of another establish- ment. Their identity was proved by calling the other store on the telephone and giving the coin number, and the accommo- dation was granted with a minimum of delay and inconven- ience. Mechanism of Office Records Some office managers prefer to have their credit informa- tion kept in folders, others in pouches or envelopes. One of the best systems is to keep the information in a 5 x 8 folder filed away in a two-column drawer. The essential information 3 34 THE RETAIL CHARGE ACCOtNT is typewritten on the outside (Figure 3) of the folder, to which the original appUcation is attached. A more detailed form of folder is that shown in Figure 4a (closed) and Figure 4b ACCOUNT RECORD Annspoa INSTRUCTIONS QiTUvn innnna ^ Figure 3. Simple Form of Folder for Account Record. (Size 8 x 5.) (open). As the applications are received during the day they are turned over to a clerk, who makes out tickets for the out- side man or runner who makes investigations at neighboring stores or banks ; or, if there is a clearance bureau, the applica- tions are picked up at stated intervals by the messenger from the bureau. Here, again, the advantages of the clearance bureau are brought to the fore, for such a bureau eflFects a great saving in avoiding duplication of inquiries and replies. It answers for all houses to whom inquiries would otherwise be directed. The association conducting the bureau should issue blank forms on which its members may report credit in- formation. Where a large establishment has its own rtmners it is possible for an account to be opened and for merchandise OPENING THE ACCOUNT 35 to be delivered on the same day in which the application is made. In a smaller concern without its own runners informa- tion is frequently delayed or the replies from references are very conflicting. It may then take several days to pass on the account. How much merchandise should be checked out before the account is actually opened will depend a great deal on the cus- "~ """■ Tr 1« : UMt HViaiB. - • mom MlU RBViaiD, - 1 •TREE ■KCUU MacavHT . 1 lUBMIT ■TOr ... RATCO AT ua Aooiiese e.0.0. ", ^fc I Mtnm I core. COLLKOTION / ■AT' MM -., AM, - -PT. OCT. — ».. ^ 1 1 Figure 4. (a) Detail Folder for Account Record — Closed. (Size 10x7.) The month column is headed "First of," and each of the six amount columns is subdivided into "Balance" and "Cash" headings. toms of the individual establishment and no recommendation can be made on the point. When the clerk has assembled all the replies to inquiries concerning the applicant they are pinned or clipped together with the application blank, and placed before the office man- ager for rating or limiting. The limit may mean much or little. In establishments where goods are authorized in only 36 THE RETAIL CHARGE ACCOUNT one or two departments, either the delivery department or credit office, it is a simple matter to assign a credit limit and make it effective. On the other hand, in establishments where mrencKCEB RIKIIT OF REPEHENCe* PASTE RBPOUT heke ACCOUNT OPENED BY iNTEnviawBO BV- RESTKIOTIONI OUAIIANTCED BY REAL ESTATE TAXED cuaTamn FDRMEII RESIDENCE— . FORMER EMPLOYER — Figure 4. (b) Detail Folder for Account Record — Open. (Size 10 x 17.) goods are authorized in many places the Hmits must be reduced, or a customer could make a "clean-up" in the course of an afternoon. A great many office managers use a code system for rating OPENING THE ACCOUNT 37 their accounts and there is a great deal to be said in its favor. The account is Hmited for a line of, say, $50. This will indi- cate to the bookkeeper that when the account reaches $75 or $100 it is to be referred to the credit manager for attention. Very frequently a customer wants all bills and communications sent to him at his business address only, or wishes no goods to be sent to any other address except on the presentation of a written order or coin. Code numbers will cover these instruct tions. Perhaps also all purchases made by a particular cus- tomer are to be referred to the office manager's office. Another code number will cover this regulation. In establishments in which some form of visible index is used, colored tubes or indicators are found of tremendous ad- vantage. As soon as the application is made for an account, a memo- randum is sent to the authorizers showing that the account is pending, and as soon as the account is opened a notification is sent to the authorizers and to the bookkeeping department, establishing the account permanently on the firm's records. Retail Credit Men's Association The advantages of membership in the Retail Credit Men's Association can be seen, for on innumerable occasions one credit manager can call up another and get direct information on a special transaction about to go through. Also, from the dissemination of adverse information about customers by the secretary of the association, stores are spared losses and the humiliation of involving themselves in a bad situation. Local or out-of-town information can be readily obtained in this manner. Member houses should send informa- tion freely to the secretary. The importance which is to be attached to the reports of a local agency will depend largely on the moral reliability of the concern issuing them, the frequency with which they are 38 THE RETAIL CHARGE ACCOUNT revised and brought up to date, and the thoroughness with which they are compiled. Except under very favorable condi- tions, these reports are only of value in tending to corroborate the statement of an applicant for an account. Some agencies, however, pursue a very careful policy, giving reasonably accu- rate data as to an individual's habits of life, earning capacity, bill-paying repute, ownership of property, with statements as to equity and mortgages, and his general standing in the com- munity. Where this information is combined with clearances from retail stores where the subject of the inquiry has been trading, the credit manager is provided with the highest type of report, one just to the customer and safe for the credit grantor to work upon. The agencies should be strongly urged to turn out nothing but strictly dependable reports, and to ren- der them in the shortest possible space of time. Granting credit successfully depends to a large degree on the skill of the collection department and the care with which accounts are followed up. Out-of-town mail order transac- tions should receive special attention, as only too frequently the necessary information is lacking for handling them in the same manner as local accounts. By intelligently keeping after the customer, through the collection department, a great many more sales can be safely made than is otherwise possible. CHAPTER IV CLOSING THE ACCOUNT Closed Accounts Classified It might be supposed that the closing of accounts would be one of the last topics to be discussed. However, the strained relationship existing between the store and customer whose account is closed, and the necessity for very careful action on the part of the credit office, first to protect its own interests, and second to retain the good-will and patronage of the per- son whose business on a charge basis is no longer to be de- sired, makes this subject almost as important as the opening of an account. Because the time and method of closing accounts vary chiefly according to the reason for the closing, it seems well to classify all closed accounts into four main groups, as fol- lows: 1 . Accounts closed because of slow pay. 2. Accounts closed because of unfavorable information. 3. Accounts closed because of too many goods returned or of other conditions unfavorably affecting the profit in the account. 4. Accounts closed because of disputes or unsatisfactory dealings. The office routine should provide that when the amount of purchases exceeds the limit which the credit man has placed on an account the bookkeeper should notify the head author izer, so that routine checking may be stopped and subsequent charges referred for his decision. It should also provide that when an account is ovejdue for a stipulated length of time a similar 39 40 THE RETAIL CHARGE ACCOUNT notification be given either by the bookkeeper or the collection clerk. Incidentally it should be observed that the word "limit" is a misleading term, as the amount fixed is in no sense an actual limit but merely an estimated figure which, when reached, gives a signal for the referring of charges. The use of a better term to express this idea would remove many mis- conceptions, and the suggestion is made that the word "line" be adopted as conveying the meaning more accurately. I. "Slow-Pay" Class— Declining Credit The first classification, "slow pay," embraces the majority of accounts closed and perhaps requires the largest amount of consideration on the part of the credit man, his main task being to determine whether the slowness is occasioned merely by neglect, or whether the customer is actually unable to settle his obligations. When an account is overdue and the regular notices have been sent out without producing any result and the credit man begins to doubt the integrity of the account, he can withhold the next order and send a letter drafted as follows : Dear Madam: We find that bills are overdue on your account for June and July, $134. We wish to point out that our charge account terms provide for settlement when bill is rendered, and we therefore ask you to send at once payment for this amount, so that there may be no delay in sending goods as ordered. Very truly yours, The Retail Store. In many cases where no current purchase is made the fol- lowing letter can be sent : Dear Madam: Payment has not yet been received for your purchases of June and July amounting to $134, and our previous requests for settlement have apparently been ignored. CLOSING THE ACCOUNT 4 1 We wish to point out that charge accounts are opened with the understanding that payment is due when the bill is rendered, and we must ask you, therefore, to send a check by return mail so that we may not be obliged to close the account on our books. Very truly yours. The Retail Store. Either of these two letters can be used according to whether or not the customer continues to purchase. The pur- pose in both cases is to focus her attention on the fact that she must make a decision and pay immediately or else have her account closed or her recent purchase undelivered. The credit man is justified in construing no reply as "No funds," and in that event the account should be closed permanently un- less the customer gives satisfactory reasons for her failure to pay. The next letter is introduced with the idea of laying stress on the importance of doing everything to retain the good-will of the customer whose charge business is declined in order that she may continue as a cash customer. Dear Madam: It grieves us to be forced to write you again in the matter of the delayed payments on your account. You have shown no inclination whatsoever to abide by our monthly settlement terms, established for all alike, and after careful considera- tion of the account, we are obliged to withdraw credit privileges. We regret this probably more than you do, but our unalterable rule in this regard leaves us no alternative. You can understand that we do not in the least like to lose your account, and we sincerely trust that we may come to some agreeable understanding in the near future. In the meantime it will be our earnest endeavor to serve you to the best of our ability on a cash basis, giving you honest values for your money and our best service and attention at all times. Permit us to assure you of our real appreciation of your past favors. Yours very truly, The Retail Store. 42 THE RETAIL CHARGE ACCOUNT The following letter can be used in cases where the amount outstanding is small and represents an old overdue item with no recent purchases. Dear Madam: Please accept our thanks for the check received a day or so ago in settlement of the small bill which had stood on your account for some months. We want you to know that we appreciate your patronage and are thankful for all favors whether large or small. However, we have noticed that — possibly due to your purchases being so few — settle- ments have been generally delayed many months beyond the monthly settlement term requirements on these accounts. It has occurred to us, therefore, that perhaps it might be jiist as satisfactory to you to permit us to serve you hereafter on a cash basis, especially as the cost of carrying these accounts is not incon- siderable. Please be assured that if thus favored it will be our endeavor to serve you just as acceptably on that basis, giving you as always our best service and attention at all times, and that any time you could see your way clear to favor us with a large share of your patronage on our regular terms it will afford us pleasure to renew the account. We thank you for your past favors, and remain, Cordially yours. The Retail Store. The next letter is one which can be sent as coming from the auditor of the store. It, like the others, also lays stress on the item of good-will, trying to sell the customer for cash in- stead of antagonizing and so driving her away from the store. Dear Madam: We are disappointed. We hoped that you would find it possible to settle your old account before this, and we are sorry indeed that our really fine record of collections is thus spoiled by having to charge your account to "Doubtful and Poor Accounts." Frankly, these have been very small so far, and we hope there is some potent reason for your failure to settle your bill. The fact that we have transferred your account does not mean CLOSING THE ACCOUNT 43 that we have despaired of collecting it. Your reputation does not permit us to feel that way. We simply dislike to have so old an account appear "open" on our charge records. Notwithstanding the fact, however, that your account is now "closed," we want you and your family to visit our store often, to see our new merchandise and the constantly increasing advantages which we are offering. You never will be bothered with your unpaid account in these visits. That is a matter for the Collection Depart- ment and will be followed up in the usual way. Our sincere wish is that you appreciate the desire we have manifested to treat you at all times with the utmost consideration, and that regardless of any action the Collection Department may have to take, we will try to serve you so well that we will always deserve and receive a good share of your cash patronage. Of course, if you are in a position to pay the account at this time, so as to relieve the Collection Department and yourself from further expense or trouble, we urge you to do so at once. Yours very truly. The Retail Store. Various Instances of Slow-Pay It happens frequently that a customer, finding her account closed, remonstrates strongly and desires it reopened. If it is shown that the delay in settlement was due to a misunder- standing of terms, absence from home, or a temporary financial stringency which in no way afifects her responsibility, the credit man may reopen the account on the understanding that the terms will be observed in the future. The account of the customer who makes no reply and makes no further purchases, continuing to imitate the sphinx in inscrutable silence and inaction, goes in due course to the at- torney for collection. In these cases, naturally, the account is closed, and the local association of retail stores should be notified so that other credit men may be warned. In doing this the store also benefits itself, since the ability of purchasers to «Dpen new accounts, while unable to settle old ones, is still a grievous source of trouble. 44 THE RETAIL CHARGE ACCOUNT Educating the Customer Strong eifort is made in all these cases of slow pay to re- tain the customer's good-will in spite of the many difficulties involved. It is manifestly harder to keep her good-will after closing her account than after merely declining her applica- tion for a charge. In the latter case the credit man is only declining to extend a convenience which the customer has never enjoyed at that particular shop, and he can assign various reasons for his refusal, euch as the insufficient information possessed by the store about the applicant, or the ultra con- servative policy it has adopted under present unsettled condi- tions in the matter of charge accounts, and the like. On the other hand, in closing an account the credit man is taking away from the customer a privilege which she has already enjoyed. She feels embarrassed at being no longer able to pronounce the magic words "Charge it," but having to pay cash. It is therefore important to take the position that the cus- tomer herself has closed the account by not living up to the agreement made when the account was opened. Any con- versation with her should not be to the effect that, "We must close this account; your payments are too slow," but rather, "We are sorry that we cannot open the account again; we only charge as a convenience so that one payment can be made for all of the month's purchases." Emphasis can be laid on the fact that slow accounts entail extra expense in bookkeep- ing, collecting, cost of extra capital, which must be passed on to the customer in increased prices. In this connection good work can be done in educating that section of the public which is under the impression that a retail charge account is opened to enable the customer to buy what she can pay for only at some future time. The granting of long-time credits is a function of the wholesale business. Buying merchants are not expected always to have sufficient funds to pay for all their orders. It is, however, not the duty of the retailer to finance the con- CLOSING THE ACCOUNT 45 sumer until salaries are paid or dividends received, and any customer expecting such credit should be discouraged. Another class of customers who need to be educated are those who consider that so long as they eventually pay their account the store loses nothing and it should, therefore, not press for payment. Cases have even occurred where an account has been placed with attorneys and collected without suit and the customer afterwards blandly came back to continue her account, saying, "You have received your money and have not lost anything by me." In these cases also the position should be taken that accounts are opened on condition that payments are made promptly. It should be explained that the thousands of accounts can only be handled by regular routine, which would be disorganized if numerous exceptions were made to the regular settlement terms, and that in the retail business, where it is not customary to receive any signed statements of customers' resources, the test of desirability is not "How much are you worth?" but "How do you pay your bills?" A letter inviting a customer to call with the idea of having a heart-to-heart talk and giving her some credit education may be as follows : Dear Madam: We should be pleased to have an understanding mutually agree- able regarding your account, that will place us in a position to honor charges recently presented. May we be favored with a call during the next day or two at your convenience ? Assuring you this attention will be appreciated, we thank you for past favors and remain, Cordially yours. The Retail Store. 2. Unfavorable Information Turning now to the second class of accounts closed, in a few cases information regarding a customer — concerning, say, 46 THE RETAIL CHARGE ACCOUNT a suit or a judgment pending against her — comes to the credit man's notice soon after the account has been opened, and upon being confirmed by investigation causes the credit man to withdraw the account. If no purchases have been made on the account he can in writing the customer take the position, not that he is closing the account but that it has been opened without a full investigation and for that reason the notice of the opening of the account is recalled and the application con- sidered as withdrawn. In most instances, however, purchases have been made on such accounts. In all cases where a scrutiny of the account reveals slow pay, or the manner of buying causes suspicion, an invitation can be sent to the customer to call and he can then be interrogated regarding the information offered in explana- tion. The cases requiring the most skill on the part of the credit man are those where the account is being taken care of in a fairly satisfactory manner. In such instances he should make a detailed investigation of the adverse item before ap- proaching the customer. References can be first revised and a new agency report obtained. In suits and judgments it will be found that the main task is to distinguish between suits caused by lack of funds, which affect the financial responsibility, and those which arise from disputes, negligence cases, friendly suits or those in which the party sued is not the real party at interest. In case of bankruptcy of the husband, the following letter can be mailed to the wife, if she is financially responsible, in the hope of obtaining her signature to the account. Dear Madam: It is with much regret we learn of the financial difficulties of Mr as reported in this morning's papers. Notwithstanding the unfortunate circumstances that have arisen, we want you to know that we appreciate your patronage and would like you to feel free to continue your account with us. CLOSING THE ACCOUNT 47 All that is necessary is, simply, that the enclosed agreement authorizing us to continue the account in your name be signed and returned to us. Self -addressed envelope is enclosed for your con- venience in mailing this back. Again assuring you of our desire to be always of service to you and that we shall be pleased to have an active continuance of your favors and account, we remain. Respectfully yours, The Retail Store. After an invitation to call has been sent and the customer has not appeared, continuing, however, to make purchases, a letter somewhat as follows may be mailed : Dear Madam: Our records show that we wrote you to the effect that we had noted a change in the commercial ratings on the account; also that purchases were quite small and possibly as a result settlements delayed several months beyond the established terms. As in other respects our dealings have been entirely satisfactory, we suggested, toward the continuance of the account, that the next time you visited the store you kindly stop in our office to see us regarding the matter. We, however, did not have the pleasure of seeing you. May we hope to be favored at your next visit? In the interim we shall be glad to receive your check covering your recent order when prompt delivery will be made. Trusting you will appreciate our position in the matter, and thanking you for your favors in the past, we remain, Cordially yours. The Retail Store. "Account closed by request" comes under the heading of accounts closed because of unfavorable information, since it frequently means that the customer desires to disclaim responsi- bility for charges-incurred by others. Such a request is practi- cally unfavorable information, since it means reduced chances of collecting thp account. When no reason for the closing of the account is given, the 48 THE RETAIL CHARGE ACCOUNT following letter can be mailed to the customer in order to bring to light any possible grievance against the store, so that steps may be taken to correct it. Dear Madam: Thank you for your check in settlement of your account as per enclosed bill. Your request that the account be closed is noted, and while re- gretting exceedingly the necessity for doing so, we have issued instructions accordingly. This request, we trust, is not prompted by reason of any faults in our service. Should this be so, however, we hope you will not hesitate to advise us with details, when we will give the matter im- mediate and careful attention, for we value your patronage and good- will highly and are desirous of retaining a full measure of both. Will you honor us with a reply? Assuring you of our real appreciation of your past favors, we remain. Cordially yours. The Retail Store. Separations, divorces, etc., can be investigated by special reports in the same manner as other adverse news. 3. Unprofitable Accounts Accounts closed because they are unprofitable on account of too many returns, or for any other reason, will now be con- sidered. When it is found that the majority of goods bought by a customer are returned for credit a letter can be sent to her calling her attention to the fact. It should naturally be assumed in the letter that the store is at fault and the customer should be invited to make criticism of the merchandise or service so that the system may be improved. If this letter is ignored and the returns continued another letter can be sent as follows : Dear Madam: In examining your account we notice that a large portion of goods charged are returned for credit. CLOSING THE ACCOUNT 49 You can readily understand that the expense of deliveries, and then calling for goods, the routine bookkeeping in charging and crediting, and the depreciation in handling merchandise, and the fact that it is out of our stock for several days, all combine to make it unprofitable to continue the account. We have, therefore, closed this account on our books and hope to continue to serve you on a cash basis. We will also be pleased to reopen the account if you vjfill assure us that in future transactions at least 85 per cent of the goods will be retained and not returned to us for credit. Yours very truly, The Retail Store. In most cases the customer will agree to reduce the number of returns and the condition of the account will be much im- proved. If no reply is received to this second letter the account is, of course, kept closed permanently. Other cases of unprofitable accounts are those where the store is instructed to deliver no goods without signed orders, yet the purchases consist mainly of small charges which must be held while the payer of the account is communicated with either by telephone or by mail. Sometimes, for example, a request is made that items be delivered only to the husband personally and that in his absence th§y should be returned and offered for delivery on subsequent trips. Cases like this are highly unprofitable and should be discouraged. It ought to be explained to the customer that the situation should be con- trolled by him and not by the store. 4. Unsatisfactory Dealings Accounts closed because of disputes include those in which the customer shows unfairness or trickiness to a degree which convinces the credit man that the customer is not honest or fair enough to merit the store's confidence, and that if it were at all to her interest she would do everything possible to evade payment. Such an account should be closed and the customer invited to continue on a cash basis. 50 THE RETAIL CHARGE ACCOUNT Following are two other tactfully phrased letters now in use covering the closing of accounts in general : Dear Madam: We wish to acknowledge receipt of your recent check to balance your account and thank you for this remittance. In this connection, however, permit us to say the terms on which our accounts are carried require prompt adjustment of all bills. It is not our intention to reflect in any way upon your financial responsibility, but as we find on referring to our ledger that payments have not come to us in accordance with the terms mentioned above, we regret we do not see our way clear to continue the account in our store. Very truly yours, The Retail Store. Dear Madam: We thank you for your remittance in settlement of your account, for which we enclose receipted statement. We observe that the account was long overdue, and that much effort and correspondence over a long period was made necessary to make this collection. This, of course, is contrary to our terms as defined in our letter to you following opening of account, and further, we know of no justification for your attitude. As a result, we in all kindness write to inform you that we have closed your account. Very truly yours. The Retail Store. Retaining Customer's Good-Will Whatever the reason may be for closing the account, a very serious attempt should be made to retain the customer's good- will when asking her to trade on a cash basis. What con- stitutes undesirable slowness will depend in large measure on the habits and customs of each individual establishment. There are some stores who do not consider their patrons slow when bills are not paid in six months. They do not even begin to ask them for money before three or four months. Fortu- nately for the general trade such shops are in the very small minority, or else retail store collections would be in a hopeless CLOSING THE ACCOUNT 5 1 state. Death, desire to pay cash for purchases, marriage of one who already has an account, and removal from the city, are about the only reasons for discontinuing an account that need not occasion the credit grantor any misgivings. When a lady calls at the office to close her account because she is going to some other city, the credit manager should not forget to remind her — if she has been in good standing with the store — how easy it will be for her to open a charge account with one or another of the large establishments located in her new home city, by simply referring to her old store. It is surprising how few seem to know this. The suggestion, com- ing as it does at a time when she is probably very much upset over the prospect of moving, is about the biggest piece of service the credit manager can render her, even though there is no cost involved. Reopening an Account In reconsidering an account he has closed, the credit manager should remember that in opening an account and endeavoring to guard against bad debts it is difficult enough to secure accurate and up-to-date information on the bill-paying habits of a customer, which in the majority of cases is the chief factor he relies on in deciding upon the application. Con- sequently when the ledgers have an accurate and up-to-date record of chronic slowness to settle, it becomes extremely hazardous to encourage the triumph of hope over experience, and it is well to remember that next in importance to skill in opening an account is the exercise of good judgment based on experience in closing it. Greater care should be exercised in reopening an account that has been allowed to lapse, that has been slow, or that has shown evidences of the customer being in legal or domestic trouble, than in opening a new account. "Past performances" are a pretty safe guide, and the few exceptions in which a 52 THE RETAIL CHARGE ACCOUNT previously slow payer has reformed and continued the account in a satisfactory manner are so rare as to prove the rule. Occasionally a formerly good payer, whose account is active, comes back only to make a "clean-up." The credit manager's watchword should, therefore, be con- tinued vigilance and constant addition to the credit files of all derogatory information concerning his customers. He should likewise place on record the names of all those reported by the local retail store association as undesirable, against the time when they will come to him and try to wheedle him into open- ing for them "just a small account which will surely (oh, yes!) be paid on the first of the month." CHAPTER V AUTHORIZING THE CHARGE Importance of Accurate Authorizing After the account has been opened on the books, the sales checks, representing the purchases made by the customer, must be passed upon in such manner that the dehvery department, through its drivers and helpers, or the clerks at the various counters, will know whether the merchandise so selected is to be proffered charged, or collect on delivery, or cash before delivery. This part of the routine is commonly known as "authoriza- tion," and authorizing the charge is one of the most vital features of retail credit Work. No matter how careful or experienced the credit man may be, if the system used in authorizing charges is poor, if errors occur frequently, the reputation of the credit man and the success of his department are both placed in grave jeopardy. The ability of the executive to delegate to others routine work, thereby reserving to himself the time necessary to effect better methods and efficiency or standardization and economy, will largely determine his own success and that of his depart- ment. Too many credit executives spend time in performing routine work that might well be delegated to others. The subject of authorizing the charge is deserving of the most careful attention from the standpoint not only of the credit department, but also of the store. If a customer is kept waiting five minutes for a package which should be released in one minute, the store will lose 80 per cent of the customer's purchasing time. Most store-owners realize the increased customer-purchasing time which efficient service brings, and 53 54 THE RETAIL CHARGE ACCOUNT have spent money' liberally in providing every possible facility for improving their service. Centralized Control Impracticable Owing to the complexity of store organization it is not possible, except at prohibitive expense, to establish an abso- lutely centralized control over the amount of charges passed. To do so would require the immediate posting of every charge authorized, so that before another charge was passed the exact amount outstanding on the account would be known, and this, together with the credit information and previous experience on the account, would enable the credit manager to take such action as was necessary. The need of establishing a method for the quickest possible communication between the credit office and every credit- authorizing section and the sales floor, not only for charge-take transactions but also for charge-send transactions, cannot be overemphasized. Likewise the close co-operation of the book- keeping department with the credit department is imperative if a close check on the authorizer's work is to be had. Work of Authorizing The business of authorizing the charge naturally falls into distinctive divisions, all of which, however, are intimately cor- related. These are as follows : 1. The sales check. 2. Means of identification. 3. Means of transmitting the check to be O K'd. 4. Means of O K'ing the charge. 5. Charge-takes. 6. Slight irregularities. 7. Authority of authorizers. 8. Restricted accounts. AUTHORIZING THE CHARGE 55 9. Reserving the charge. 10. Changing instructions on accounts. 1 1 . No-account charges. 12. Charges in error. 13. C.O.D. in error. 14. Authorizers' records. I. The Sales Check The form of the sales check does not concern us here particularly, except that it must be adapted to the method of authorization used. The matter of writing of the sales check is, however, of great importance in authorizing the charge. The entire selling force must exercise both care and co-operation. Illegible writ- ing and poor spelling, or carelessness in getting the correct initials or the correct address greatly handicap the authorizer. Every part of the check should be so written that the name, address, and items can be told at a glance. Frequently the amounts are not written in the proper columns, and an authorizer who is in the habit of looking in the dollar column for the amount of the charge often misjudges the amount if figures are not carefully written and carefully placed on the check. The full name is, of course, essential. Charges against common surnames are often delayed because the initials are incorrect or incomplete. The check must, of course, be completely filled out. A good many houses have found it to be a wise policy to have the salesperson specify who is doing the purchasing. If it is one for whom the account is run, all that need be marked is "Self." If someone else, the name must be clearly noted. The advan- tages of demanding this from the selling force are obvious. It is often difficult to get a negligent floor manager or salesperson to fall in line with these demands. It has been found that if the authorizers are strictly instructed not to accept 56 THE RETAIL CHARGE ACCOUNT charges the sales checks for which are incompletely or incor- rectly filled out, the delay of sending the check back to the salespeople will bring the fact home to them that their time and energy will be saved if they comply with the request of the O K office in the first instance. Sales checks when transmitted through carriers should be so folded that the name and address will be uppermost. Where alphabetical division obtains among the authorizers, it is wise to require salesclerks to print the initial of the last name. 2. Means of Identification The means of identification, at best, are matters of judg- ment. Two general principles have been adopted by various establishments. Some have instituted the use of numbered coins which are issued to each charge customer. It is expected that the customer will bring this coin whenever she wants to do any shopping, or send the coin when she desires others to shop for her. Floormen and salespeople then need not use any judg- ment but are permitted to have the coin act as an absolute means of identification. In such cases it has been found necessary to issue daily lists to all floormen of the numbers of the coins that have been withdrawn or upon which special instructions have been issued. While the coin system has some advantages it has many disadvantages. Many people, especially the better class, very often do not take their coins with them, and the floorman must either embarrass them or pass judgment upon them, which is the very thing the system is supposed to obviate. Then, again, the coins may be lost by the customer and found by unscrupu- lous people who will make use of them. Many customers dis- like the idea of carrying coins with them.. Some people, when they find they have forgotten their coin, will often not shop in the particular store for fear of being embarrassed if they should desire to take a purchase with them. AUTHORIZING THE CHARGE 57 To overcome the disadvantages of the coin system many houses identify their charge customers by the "signature and floorman" method. That is, on all checks for charge-take sales the customer's and floorman's signatures are required. The customer's signature is compared with the records in the office. Houses which authorize under this system have on file the signatures of all who are authorized to purchase. The floor- man's signature signifies that he recognizes the customer. It is naturally impossible for a floorman to know every account on the books, but he is expected to use discretion and judg- ment. There are numerous means of identification which a floor- man can notice or request without embarrassing the customer. Where he does not feel sufficiently secure in authorizing a delivery, he refers the customer to the office for identification. The customer, however, almost always carries some satis- factory means of identification with her. Customers find this method more convenient and making for more pleasurable shopping than the coin system. 3. Transmitting the Check to be O K'd There are various methods of delivering the charge to the department of accounts for its O K. Some of the houses have the charges O K'd in the delivery department. The charge check is delivered to the authorizer here, together with the package, either by means of chutes from the various depart- ments or by belt conveyers. In some of the specialty houses messenger service is used, or the sales person takes the charge to the O K office or division. In houses where the charge is not O K'd in the delivery department, there is usually a pneumatic tube service for send- ing the charge to a tuberoom, and when a "refer" is necessary it is relayed by a tube to the charge office. In the use of the pneumatic tubes the authorizers must take great care to handle 58 THE RETAIL CHARGE ACCOUNT the carriers so as not to clog the tube system and delay the return of the charge. Other houses, particularly on "take" authorization work, have adopted the use of the telephone with electric stamp attachment. 4. Means of O K'ing the Charge The operation of O K'ing the charge varies according to the system of authorization used. In those places where the charge is authorized in the delivery department the hand stamp is usually employed. The stamp is shaped differently at each end, one end carrying the letters "C.O.D." and the other "O K" and both having the date and the initials or name of the authorizer. Perforating machines are used in those houses where the authorizing is done in the tuberoom or in the charge office. These machines usually perforate the word "Charge," the date, and the initials or code for the authorizer using the machines. In some houses a time-clock is attached to the machines to show the time of authorization of the charge. People who have been authorizing a number of years claim tnat there is less exertion and more ease in authorizing with the hand stamp than with the perforating machine, which is operated with the hand or the foot. Where the customer is in a hurry and where the floorman can identify her as the customer, the charge on a "take" may be authorized by phoning either the tuberoom or the O K office. In such cases it is important for the floorman or sales- person phoning to get the name of the person O K'ing the charge at the other end. Where the phone authorization method on "takes" solely obtains, the electrical stamping device completes the authorization. In those establishments where the authorization is made in the delivery department there are numerous possibilities for error. In addition, night work is regularly required. For this AUTHORIZING THE CHARGE 59 reason it is sometimes difficult to get the best kind of help for performing the authorizing work by this method. 5. Charge-Takes For the convenience of shoppers a system should be devised to accelerate charge-takes — one which will speed the work of the authorizer and at the same time prevent, so far as possible, fraudulent buying. In all large establishments the floormen and salespeople are permitted to deliver to customers up to a certain amount with- out waiting for authorization from the charge office. This amount varies. Usually the salespeople are permitted to deliver up to a small amount without even the floorman's signature. Floormen are permitted to deliver up to a some- what larger amount without waiting for the charge office's O K. On larger amounts the charge is referred immediately to the authorizers. On all charge-takes, however, the customer's signature should be obtained. Delivery on charge-takes is simple where the coin system is used. When the amount is beyond the authority of the floor- man, the charge check is sent immediately to the authorizer; when the customer is in a hurry or when the charge is delayed, the floorman may have the charge O K'd by telephone. Where charges are authorized by the tube system and coins are not used, greater care must be exercised to prevent fraud. Different colored carriers are used to enable the authorizer to distinguish charge-takes and give them preferred attention. It often happens that children, relatives, friends, or servants of a customer come in to buy on her account. Unless the customer has given definite instructions regarding these it is very important to watch such charge-takes. In such cases, too, it is best that the charges be confirmed over the telephone by the authorizer. If it is impossible to reach the customer by phone it is necessary to send for the buyer. Often a customer 6o THE RETAIL CHARGE ACCOUNT forgets she has given instructions to the contrary and asks a particular friend or relative to shop on her account. The charge office must be sure that the purchase is proper and must call the shopper to the office. Sometimes a person buys and attempts to take goods with her when her account is restricted or even closed. In this case, too, the customer must be sent for. If the salesperson or floorman has used the telephone in communicating with the authorizer, it is easy enough to tell him to ask the customer to step to the charge office. When the charge comes through the tube or is brought up by messenger, the clerk can be instructed either by form or orally to request the customer to go to the office. In no case should the floorman or salesperson be told the reason for this action, no matter how bad the account may be or how suspicious the character may seem. In cases where fraudulent buying is plainly evident, it is wise also to inform the detective staff of the house to go to the department where the charge is presented and see whether or not the customer will identify herself or will obey the instruction to come to the charge office. It sometimes happens that perfectly honest and well-meaning people are victims of overmuch care or victims of their own negligence in not restricting orders. It is then difficult to allay their indignation. A good customer called to the office, however, need not be lost, and a Mrs. Slow-Pay or a Mrs. Overbuy can usually be made to see the light if the interviewer is tactful. 6. Slight Irregularities Irregularities in the charges presented often occur. A charge will often have a different address or a different initial from the one on file. In this case it is usual for the authorizer to send the check back to the salesperson to ascertain the cor- rect address or correct initials. Most likely, however, the customer has already left the department and the salesperson AUTHORIZING THE CHARGE 6l cannot help the authorizer. The charge is usually then referred back to him for verification. Where the address is different from the one on file, an attempt should be made to reach the owner of the account on the telephone either at his business address or the old address, and see whether or not this is a new address or a "fraud-buy." Similar care must be exercised where the initials disagree as very often different families reside at the same address, or various members of the same family run separate accounts, or certain members of the family do not wish their relatives to be charging against their accounts. Confirmation should be secured before charges are passed in the case of any such irregularities. 7. Authority of Authorizers In all of the larger establishments there are usually two sets of authorizers, one known either as the "tuberoom authorizer," or the authorizer in the delivery department, and the other known as the "refer authorizer," working directly in the charge office. The authority of the authorizers in the delivery and the tuberooms is very clearly defined and limited. In O K'ing all charges they must not exceed a certain percentage of the limit. They are not permitted to authorize any charges on any restricted account, nor must they accept charges where the initials or addresses do not tally with those on record. In all such cases the charges must be referred to the refer authorizer, whose authority is much wider and who in many concerns is assistant to the credit manager. The refer authorizer must have various aids in order to do speedy and accurate work. He should be provided with forms so that if he is not working immediately from the ledger, an errand boy may secure for him the amount owing up to date on a particular account, including the charges recently posted. The ledger or balance cards, or similar aids, should be available 62 THE RETAIL CHARGE ACCOUNT SO that, if necessary, he may know the payment habit of the customer. There should also be forms for ascertaining from the cashier whether a payment has been made. It is often well to devise some plan of setting up maximum limits, based on "limit classification" and "payment habit," from which refer authorizers can guide themselves in authoriz- ing charges. 8. Restricted Accounts Accounts which are restricted in any way must be referred by the tuberoom or delivery authorizer to the refer authorizer. On restricted accounts, marked "Refer pending settlement" or "Refer pending interview," or referred for any other reason, also accounts marked "Over the limit" or restricted in any other way, proper forms should be used so that all necessary information may be submitted with the charge to the assistant credit man or the credit man himself. In this regard it is important that the bookkeeping department be provided with a system of notification so contrived that the indexes from which the authorizers work may be properly marked when an account becomes "over the limit" or when the account should be referred "pending settlement." Rules in this regard vary in diflFerent houses but the following is typical. Every day the bookkeepers list on specially provided sheets the name, address, folio number, amount owing up to date, and date of last payment on all accounts which are overbuying or referred for the first time as over the limit or overdue, and also the accounts which have been referred to the authorizer and are now O K. These lists are then checked back against the in- dexes of the authorizers so that they in turn may be corrected. 9. Reserving the Charge It often happens that a charge must be reserved and the customer communicated with before passing it. Discretion AUTHORIZING THE CHARGE 63 must be used in such cases, as charges for perishable goods can- not be reserved very well. Where a charge is being reserved it is important that the sales department from which it comes be made aware of the fact. In many houses the charge office does not retain a sales check longer than one hour without duly notifying the department. Special forms are provided for this purpose, known as "inspector's vouchers" (Figure 5), which Tuse No. HOLDING AT OFFICE Coupon No. 4203 CLERK NO. CHECK No. DATE NAME M10RES5 GOODS TO- ORDERED BY MOSS. Olt^OIITION REMARKS Figure 5. Inspector's Voucher. (Size4x5M-) bear the name and address of the customer and the amount of the charges. If the customer has given the department some definite instructions regarding the date of shipment, the sales- person can immediately communicate with the 'charge office, and unnecessary inconvenience is thus avoided. A definite time should also be decided upon for keeping these charges reserved. Should the customer not respond to a communication sent to 64 THE RETAIL CHARGE ACCOUNT her or should the response be unsatisfactory, the department should immediately be informed of the fact and the goods returned to stock. 10. Changing Instructions on Accounts As has been previously pointejd out, it is necessary very often to pass instructions to the authorizers to change their indexes. This is an important part of the work, for as soon as the customer informs the charge office that her address has .Sg^y.^. aan/ wontft-ar^^ ■■nUM Mnl, 1 ,„,„, (»^%UIU..«„.,..l-»... ^^^ ■..Uto, IM •»"-""■-""■- Ctunie o( Addnu CLASSIFICATIONS HwRtcehMl 1 t S.a.1 1 Bu I<»cdY.| 1 CmI I IteDol 1 P.4P.I I N.N.P.I 1 Pt.dj CiuLCilM Co n Rm PhOM Util — T Nn ATTBmON OP Em t Twp H^trl 1 M.R.I 1 B^ 1 .Xddrl 1 AUl | ! SalciOMdi t WATCH CHARGES • Chmge % to Mr. s„„,...™Si; — i 1 ♦ Change "/c to Mrs. ,J!S3 1 Wr. CWcr Rcq. oa lU chir|«t — 1 I.I.I. 1 OIGdal Onlcu del-d la Rei. — Withdraw Application Beq. SS y^m. — Of Hut. BeariDi Order No. Withdiaw Account Req. SS OfWih ShDTT Order No, on Bid a«o,e^ = 01 % Reopen "/c Req. fe TfrtoAcH*^ ; Bilta. «e. t K. to C. as Ttriolne t StfatAie lor D«llT « «f. Eacb uldrM* Weekly • + Refer 'Void Refer f^^ — Eicb Cbtixe hdwlio,. — * Tians. to Active ♦MakeLunitJ Biii» "" — EnlablH Td Km. AddTMi t Trans, to Inac. Old Limit $ General 21iJ59 A «OIH - K.... fc CM, ft".« K— 1 ~" 1 ■»»>■"" 1 tair&'SX.'!XfiJSiiiisrt^i.,^iu.'iir,T^^ tsfe, Figure 6. Form for Passing Instructions to Authorizers. (Size 8Mx sJ^.) changed or that no takes are to be allowed except on a written order, or gives any other instructions, the authorizer should be made aware of the fact with as little delay as possible. Form letters made on duplicating machines are usually distributed to the departments having use for them. An interesting form for passing instructions to the author- izers, which is rather complete, is presented in Figure 6. It AUTHORIZING THE CHARGE 65 will be noticed it is only necessary to insert the name and address and a few checks in the form. The instructions are usually so clear as to prevent the possibility of serious error. 11. No-Account Charges Charges are very often presented to the authorizer for which there is no definite account. One of two procedures must then be followed. Either an account must be opened or the goods must be sent C.O.D. Where a charge-take is presented on a "no-account," the customer is sent for and an understanding with her reached. A charge-send, however, on which sales check authorization is refused, is turned over to a clerk in the office for the possible opening of an account. The name of the person for whom the charge is made is checked with the rating books and against every possible credit information. Where this information is favorable, the goods are usually sent out charged and the person immediately communicated with, either by phone or by mail, to the effect that changes have been presented for which the house has been glad to open an account. It frequently occurs, however, that charges are presented for people who are not rated and concerning whom no other in- formation can be obtained. In such cases an attempt is made to telephone the person for whom the charge is intended. Where that is impossible, it is wise to send the charge C.O.D. Where charges are presented for a name similar to the one in the index but under a different address and the person cannot be reached on the telephone, the goods are stamped with instructions to the driver that if the former address was so and so, he should leave them O K, not C.O.D. 12. Charges in Error Even with the best of systems and the most careful sur- veillance, errors are made in passing charges. Merchandise is sent out O K to people whose accounts have either been with- 66 THE RETAIL CHARGE ACCOUNT drawn, declined, or closed. Great tact must be used in such cases to insure collection of the account. Where the account has been withdrawn, the customer is informed by telephone or otherwise that someone has been charging to her account and that the house would be glad to re-establish her charge privileges upon official word from her. However, where the account has been closed by the house the procedure is more difficult. Collection is usually attempted by sending a bill or statement to the person for whom the charge is made. Such charges are posted on a separate ledger. Errors sometimes become very numerous and run up into large amounts. Houses have drawn up a form letter for each type of error and follow up the collection of the accounts both by letter and telephone. Collection can usually be efifected except in cases of fraud-buying. Various schemes have been tried to train the authorizers to keep down the number of errors in passing charges. Fines were formerly imposed, but this is now illegal. An ingenious method, however, has been devised to overcome this difficulty. It is a sort of within-the-law idea and has worked splendidly, so much so that errors have become surprisingly low where the method is used. Each authorizer at the beginning of each period of three months is rewarded with advance prize money of $2. This money does not belong to the authorizer, being merely advanced as a prize. For every error he makes he is fined lo cents from this prize money. The effect on him is the same as if the money were paid from his salary, and perhaps the psy- chological effect is stronger. The money collected as fines at the end of the stated period is divided among those who have made the least number of errors. Each authorizer thus finds himself at the end of the period with a larger or smaller sum left of the advance prize money, according to the number of errors he has committed. The scheme works perfectly, and AUTHORIZING THE CHARGE 67 until laws are passed against giving advance prize money the number of errors made by authorizers will be low. 13. C. O. D. in Error Very frequently it happens that goods are mistakenly sent C.O.D. to a person whose account is perfectly good. In such case, the customer may ask the driver to call the charge office to have the charge verified. The authorizer will then instruct the driver either to leave the merchandise O K or not, as he sees fit. The driver will secure the name of the authorizer and note it on the C.O.D. check. These charges will then be returned to the office and O K'd in the regular way. Where a driver on his own responsibility leaves a package charged which went out C.O.D. and for which the account has been withdrawn, the driver is usually held responsible for this delivery, although collection may be attempted by the charge office. 14. Authorizers' Records It is well that authorizers keep records of various phases of their work. Such records can be used for purposes of com- parison and in planning for changes and improvements. A system is usually devised whereby the authorizer can keep a record of the number of charges passed daily. A record should also be kept of the number of charges reserved overnight. The index, preferably a visible record, from which an authorizer can pass a charge must contain : 1. Full name. 2. All addresses : (a) Residence. (b) Business. (c) Summer or other shipping points. ■z. Limit. 68 THE RETAIL CHARGE ACCOUNT In addition the refer authorizer's records will contain : 4. Restrictions, if any. 5- Ratings. 6. Business connections. 7. All extra instructions (buying privileges). 8. Number of filed information, or folder. 9. Signature, particularly in some case of previous fraud- buying. The records of the purchase and payment habits of the account should also be available to the refer authorizer. This can be assured either by application to the bookkeeping depart- ment or by records based on actual ledger experience, such as balance cards. Unless such information is easily and quickly available the possibilities of error and overbuying are increased greatly. Mechanical Systems Used in Authorizing Sales Checks The mechanical system used in authorizing the sales checks depends on many conditions. Some establishments favor the use of pneumatic tubes for conveying the checks from the clerks on the various floors to the authorizer for all charge transactions, sent as well as taken. Some handle only the "takens" by tube and have the rest sent with the packages to the delivery authorizer. Others employ a combination of both plans. Still other houses feel that better service can be obtained by means of a stamping device connected with a specially designed telephone. The cost of installation and upkeep of the several systems must be carefully compared with each other, and above all the human element, together with the sort of supervision which is to be afforded in both plans, must be given close con- sideration. Unless this is done an intelligent comparison is out of the question. AUTHORIZING THE CHARGE 69 Comparison of Mechanical Systems As mentioned above there are three methods by which the sales check is authorized by the credit department : instructing the driver to leave packages charged, or to collect on delivery, or allowing the customer to take merchandise already selected. The simplest form will be mentioned first, that is, the stamp- ing in the delivery department of the sales check attached to the package which has been sent directly from the sales floor through a chute or by means of a belt conveyer to the delivery authorizer's room. The name is here referred to an index of customers' names and if O K is stamped and sent on its way. If for any reason at all the check must be referred to the credit office for other instructions it is either dispatched by pneumatic tube or sent by messenger to the credit office for further attention. In a great many establishments, however, the sales check is authorized before the merchandise is wrapped. The two principal systems in vogue for handling this sort of transaction, including take- with purchases, are the pneumatic tube system or the electric phone system. We will not attempt to "sell" either method but rather to mention the salient features of each, illustrating the highly developed stage to which both of these plans have arrived. The Pneumatic Tube System In the pneumatic tube system inspectors' desks are located throughout the store at strategic points, each equipped with a complete tube station. Charge "take-with" sales checks are invariably placed in carriers whose ends are marked or the entire carrier painted in a color so as to readily distinguish this class of transaction from "sending" purchases. This is done so that these particular carriers will receive particular attention on arrival at the O K'ing center. The carriers themselves and the system may be arranged 70 THE RETAIL CHARGE ACCOUNT for the "self-tripping" by which charge-take carriers are shunted to one side so as to receive preference. The accom- panying illustration (Figure 7) shows how this is accomplished and at the same time indicates how the charge business is kept separate from cash transactions in those establishments where a central cashiering station is still in operation. By means of this apparatus consecutive delivery to cashiers and authorizers is obtained regardless of volume of business. In the illustration the cashier in the foreground is seen dis- patching a carrier by way of the cash carrier belt conveyer to the carrier return dispatcher. Inlets to the returning belt of the cash carrier belt conveyer carry doubtful transactions to the cash supervisor. The one outstanding feature of the tube system is that the original check as made out by the salesclerk and signed by the customer is handled by the authorizer and any errors can im- mediately be detected. Clerks have a strange habit of mis- spelling names, or reversing the charge name and address and that of the address to which merchandise is to be sent when the latter does not happen to be the same as that of the charge cus- tomer. Where the check itself comes to the authorizer's atten- tion the remedy can generally be instantly applied. Where the O K is accomplished by phone the remedy is not always so easy. As fast as the checks are O K'd, they are placed in bins from which they are collected at frequent intervals by mes- sengers from the auditing department so that the day's work can in most instances be cleaned up practically at the close of the day. The checks representing what few sales are made in the late afternoon can be disposed of in the auditing and book- keeping departments the first thing in the morning. Electric Phone System The electric phone system consists of two parts: (i) au- thorizer's telephone switchboard (Figure 8), located in the AUTHORIZING THE CHARGE 71 72 THE RETAIL CHARGE ACCOUNT credit office; (2) stamping perforating telephone units known as "charge phones" (Figure 9), located in the various selling departments throughout the store. The salesperson (or wrapper) inserts the charge sales slip in the phone and presses a button to signal the authorizer. Figure 8. Authorizer's Telephone Switchboard Figure 9. Stamping Perforating Telephone Unit This causes a signal light to appear on the authorizer's switch- board. The authorizer answers the signal by inserting a con- necting plug below the light. She then presses the "ringing" button on the switchboard. This makes a buzzing sound in the calling phone, which tells the salesperson that the authorizer is ready to give her atten- tion to the call. When the salesperson hears the buzzing in her phone, she telephones the name and address of the customer and the AUTHORIZING THE CHARGE 73 amount of the purchase. If the authorizer approves the sale, she presses the "stamping" button on the switchboard. This causes the charge phone to print on the sales slip the charge phone number, the date, and the charge, e.g., "io-Oct-26-20-CH." At the same time the perfor- ating device on the charge phone perforates the address label on both the original and duplicate of the charge sales slip (Figure lo). This is the authority for the ship- ping-room to deliver the package. If the authorizer does not ap- prove the charge she so advises the salesperson over the phone. She may request the customer to call at the credit office or give such other instructions to the salesperson as she may deem advisable. Figure 10. Charge Sales Slip (original and duplicate) Perforat- ed by Charge Phone Device Two Types of Electric Credit Systems Two distinct types of electric credit systems are built. One is called the "direct" call and the other the "selective" call. There is no difference in the results accomplished by the two types. They are both easy to use and wonderfully quick in their action. They vary a little in construction, but the chief difference is in the way the calls are received at the authorizer's switchboard. The direct call type is built so that each tele- phone in the store is connected with but one terminal in the authorizer's switchboard. For example, all calls from phone number lo can be answered only by the authorizer in whose switchboard section line number lo terminates. On the direct call type system of two desks, all calls appear on both desks. This makes it possible for an authorizer who is not busy to take calls from an authorizer who is overtaxed. 74 THE RETAIL CHARGE ACCOUNT Direct call type systems are built with switchboards in a number of different sizes. The smallest has a capacity of 20 phones, the largest a capacity of 120 phones. Where more than four author izers are required the "selective" type system is given preference over the direct call type, as the work of authorization can be more evenly distributed and better service given. With the selective type system, the charge phones are pro- vided with as many calling buttons as there are alphabetical divisions of the accounts and switchboard units. If authorizer No. I answers calls for names which fall in section A to D and a charge is to be made to John Adams, the salesperson will press the button indexed A to D and the call will appear on author- izer No. I's section of the switchboard where the A to D ac- counts are located. Each authorizer passes on the charge transactions of cus- tomers whose names are in her division, no matter from what part of the store the call may come. In this way she becomes very familiar with the group of names under her charge, and the speed with which this work can be done is greatly facili- tated. During dull hours calls for any or all groups of accounts can be transferred automatically to one section of the switch- board. This makes it possible for one authorizer to operate the entire system. The telephone itself is unique. The transmitter and re- ceiver are built complete in one piece. When the receiver is placed to the ear the transmitter is brought directly to the lips. The telephone is attached. to the stamping unit by a cord to make it easy for the salesperson to use it. She can telephone with the least amount of effort while standing in a natural position. The telephone circuits are especially designed to carry a low-pitched voice. Salespersons can communicate with the credit office so that those standing near will not hear what is said. AUTHORIZING THE CHARGE 75 "Direct Call" and "Selective" Type Systems Both of these methods are used with a remarkable degree of satisfaction, but like mechanical bookkeeping methods they must be adapted to the particular needs of the store consider- ing their use. Both have "proved out" to a high degree and any criticism which can be made will generally be found to be based on the "human element" involved. At a recent conven- tion of the National Association of Retail Credit Men the respective merits of these two systems were debated hotly for upwards of an hour and no conclusion was reached. Suffice to say, however, that no matter which method is used the sales checks must be watched carefully to see that the name and address are legibly written and that the check itself is kept in as clean and uncrumpled a condition as possible. They must also be collected at frequent intervals so that the other departments who must work on them after they have been authorized, can do so with the least possible delay. They must be safeguarded in such a manner that they are not torn or lost. Lost checks mean duplicate checks, dissatisfied cus- tomers, and dissatisfied and complaining salespeople, whose "indexes" do not correspond with the auditing department's records of their sales. They mean also a loss to the store be- cause customers frequently receive merchandise for which they are not billed, simply because the original check was lost. If possible, attention should be given to expediting take- with purchases so that the customer will not be kept waiting at the counter any longer than is absolutely necessary. There is nothing more irritating than to have to wait ten or fifteen minutes at the counter to get the O K from the credit office to take a package along with you. In these days when stores are spending a great deal of efifort in trying to educate their cus- tomers to take all small packages with them, it is very important that everything be done to make it possible for the customer to comply with the store's wishes in this regard. CHAPTER VI LIMITS AND OVERLIMITS Assignment of Limits The subject of limits placed on accounts is so closely allied to the previous topic discussed, authorizing the charge, as to be practically part of it. Why should there be a limit assigned to accounts ? The answer is that therp must be some boundary set for the authorizer, either in the delivery station or at the refer desk, to guide him in checking out merchandise on an account that has already been opened. In the wholesale account the matter of credit limit is more readily arrived at by reason of the fact that the customer sub- mits a financial statement setting forth in a very definite way his assets and liabilities. In the case of individual purchasers no such means are available for determining credit limits. Judgment in extending credit must be based largely on the general information given the credit manager regarding the applicant, and the amount extended will depend in a great measure on the manager's ability to gauge the customer's or her husband's paying capacity when her or his position or business occupation has been carefully looked into. The amounts assigned as limits will be governed largely by the customs of the establishment, as there may be two or more checking or authorizing stations, which will introduce a certain amount of complication into the system of checking. One prominent house places its limits in six groups — $25, $35, $50, $75, $100, and $200, classifying the people to whom these limits are to apply as follows : "limit," "watch," "fair," "good," "well-to-do," and "wealthy." This particular house enjoys the advantage of having its authorizing done in one central 76 LIMITS AND OVERLIMITS 77 Station, thereby assuring complete control of all the merchan- dise that goes out of the house. In a great many other stores, however, there are anywhere from four to twelve checking stations and a different system must be followed. We shall consider the fundamental principle underlying all these trans- actions. Restricting Individual Purchases In some cases, it very frequently develops that the cus- tomer is allowed to purchase a bill of goods far in excess of the limit assigned. To the less experienced it is a source of surprise that mer- chandise amounting to several hundreds or thousands should be checked out on an account with, say, a limit of only $50. Such cases, of course, are only permitted because of the in- formation presented to the credit manager at the time the account was opened. But for the present we shall consider only the every-day treatment of limits. We shall suppose for convenience that our customer is in "fair" circumstances and that we have assigned her a limit of $50. With some houses this means that the authorizer is per- mitted to check out purchases as high as $50 at any one time, and he is, therefore, compelled to remember from day to day with fairly close approximation how much each customer has bought. This is hardly fair to the authorizer, and one remedy in vogue seems to be a really remarkable solution of the situa- tion. According to this system the authorizers in a centrally located bureau, are permitted to check out as m-iny transac- tions as they wish, amounting to 10 per cent of the limit; in other words, the customer with a limit of $50 can make as many $5 purchases, or less, during the day as she desires, but should she buy an article amounting to $5.01 the sales check is referred to the central office for attention. On the face of it it would seem that the refer checks would 78 THE RETAIL CHARGE ACCOUNT be unnecessarily increased, but as a matter of fact on a care- ful audit covering a period of several months it was found in the case of one concern that these additional refers were only 15 per cent of the total number of schedules referred to the credit office for attention. Meanwhile, the other authorizers were relieved of the responsibility of remembering what each customer had bought and relying on the law of averages to off- set unwarranted purchases which might occasionally occur. When the charges are posted to the customer's account and the limit is reached, the fact is immediately communicated to the clerk whose duty it is to consult the collection records and determine how the customer has been paying. If the cus- tomer's habits of pay have been uniformly satisfactory, no change is made in the limit of the account, but purchases are allowed to continue up to another 50 per cent increase. If the habits of pay, however, have not been satisfactory, the account is restricted and all schedules are referred to the credit office. If the customer still continues to buy, proper action is taken. Either the customer is asked to call to talk over her current purchases, or a carefully worded letter is sent notifying her that this particular order is being filled but before another purchase will be permitted she must take care of the old bill. Or she is informed that the present order will not be filled until she pays the old bill. Collection Department Record The collection department can measure to a great extent the credit manager's success after passing on his accounts. Its own records should always be a duplicate of the book- keeper's records in so far as monthly totals and monthly cash are concerned. In this manner an accurate history of each customer's bill-paying habits is immediately available. After all, as one executive puts it, "It is not so much what a man has, but what he parts with that interests me." LIMITS AND OVERLIMITS 79 In order that the collection department may be fully in- formed at all times as to the condition of the accounts, a record for each account should be provided, in either card or loose-leaf form, to show the amount purchased by the customer each ■month, the cash paid in, the balance owing at the first of each jmonth, and also the amount of merchandise returned. ' The real value of this form is not appreciated as fully as it ought to be. It can be made up in such a way as to furnish a continuous history of the account for several years. Regard- less of the actual financial responsibility of the customer, it is highly essential that the credit manager know at a glance the promptness with which bills have been paid. If the book- keeper's itemized ledger must be consulted on every occasion considerable time is wasted drawing off so-called "records of account." Moreover, it is not at all easy to learn by this sys- tem just how the account has been conducted over a consider- able period of time. Collection records are simplified and follow-ups on unpaid bills are more readily maintained if it is possible to glance at a form which gives the full name, residence, business address, and bill-paying habit, together with the key numbers of letters mailed, as well as any promises made by the customer and any special arrangements entered into with her for the settlement of the account. Looking back over the history of the account thus presented it is a simple matter to decide just how to handle a particular situation or draft the proper letter. Note should be made on the record of the amount of mer- chandise returned from month to month, as many accounts are actually maintained without profit, if not at a positive loss, because of the disproportionate number of returns. Such a record is occasionally of great value when special considera- tion must be granted. It is then necessary to know the value of the account to the house in its past transactions. The fol- lowing illustration (Figure ii) explains itself. 8o THE RETAIL CHARGE ACCOUNT It is obvious that the refer authorizers should be selected with great care, for in the majority of instances they are Account Opened BiiRinRiw 1 imit Remarits TEAR Manth CHARGES RETURNS CASH DATE AMOUNT BALANCE MEMO JAN. FEB. - HAR. .UR« -1 ~:i 1 r— —— — n ^ 1 1 NOV. •ec. Figure II. Collection Record. (Sizeiix8}4) virtually assistants to the credit man in that they handle a great many details which need not be submitted to him or his assistants. In many establishments the authorizer is expected to re- member the customers' names and whether or not they are in good standing. In other concerns this method is absolutely for- bidden, and all schedules must be checked with reference to the special index which is provided for that particular pur- pose. It is at all times desirable to reduce the number of refer checks where possible and to make this part of the store rou- tine as mechanical as is consistent with safe practice. The question naturally comes up as to what percentage of charge schedules can reasonably be expected to be referred. This naturally varies in different establishments and runs all the way from lo to 30 per cent of the daily charge sales checks. Nat- urally anything that can be done to reduce this number makes for greater speed and efficiency in the delivery of the customer's merchandise. LIMITS AND OVERLIMITS 8 1 Revision of Records Constant revision of credit records is necessary in order to keep the statistics up to date. Change in business, residence, or increase or decrease of salary impose new responsibility on the reporting agencies in furnishing credit information on indi- viduals. It is to be remembered that the human element is constantly present, so that our favorite slow account is con- tinually managing to get away from us despite all precautions. The moral risk, after all, is the fundamental consideration in passing upon an application for an account, as it is exceedingly easy for a person so disposed to make a "clean-up." In order that the credit and collection managers may be fully posted as to accounts that have exceeded their limits, the bookkeeping department must be prepared to furnish • daily lists of such accounts, giving names, addresses, limits, and amounts owing. When the names are entered on the overlimit sheets, a mark should be placed against the accounts in the ledger to check the bookkeeper's work and avoid repetition in reporting. When the account falls below the limit, this should also be re- ported. The balance cards, as previously described, afford a double check against the possibility of an account getting out of hand, except in the case of the present month's buying, which ap- pears only on the ledger. Hence the bookkeepers should be quick to recognize and report at once an account which is be- coming unwieldy, regardless of any special instructions they may have received. It is quite obvious that the credit, collection, and book- keeping departments should be placed under one single con- trol, that of the credit manager. Without such single control the proper co-ordination of effort will not exist and there are bound to be lapses in the work which may prove embarrassing if not expensive. 82 THE RETAIL CHARGE ACCOUNT Line of Another House as Basis for Judgment It is still a custom in certain quarters in giving a reference on a customer to say: "Line of 50, old account, satisfactory pay." The fallacy of granting credit on such information, which is taken from the ratings on the account, is only too plain. The line that one house will establish for its account does not give any fair basis on which another house may pred- icate its judgment. Some houses also do not change their limits so long as purchases are within the figure assigned, even though payments may be anything but satisfactory. From the initial application the scarlet thread of caution runs through every phase through which the account subse- quently passes, and although the assignment of credit limits is a subject of comparatively small scope, it is inextricably bound up with all the preceding and later operations, and it is impossible to set it off entirely by itself. Nor is it necessary, as the history of the retail charge accounts must be read as a whole, for no single operation can be glossed over without the credit manager at once losing his full sense of balance and getting into a very unhappy state of mind. Another interesting question is — should the customer be notified of the limit placed upon her account ? Generally speak- ing, it is not considered wise to give her any idea of the limit. Some houses even have the rating coded on their papers so that if the customer should by chance see these papers on the man- ager's desk, she will be none the wiser. Authorizers' Errors Despite all the precautions which may be taken the author- izers will still manage to check out items to people who do not have accounts or to those whose accounts have been perma- nently closed by reason of slow pay or for some other serious cause. To reduce these errors to a minimum not only in amount but also in number is one of the credit manager's problems. LIMITS AND OVERLIMITS 83 Some firms make the authorizer responsible for the collec- tion of all such items, but this does not seem exactly fair for several reasons. In the first place, a mistake may happen in the best regulated organization, and to expect the clerk to col- lect such an item is to ask him to do something that is not in his line. In the second place, it imposes -an unnecessary burden on the authorizers who must do the clerk's regular work while he is making the collection. Too many such errors naturally and automatically eliminate the offender. A method now successfully employed by a certain large store whereby authorizers get bonuses for avoiding errors, has been described at length in the preceding chapter. The in- centive to gain the additional compensation offered, however small, is great and the feeling of pique at having to share with others something that might have been theirs in full stimulates the employees to greater care and accuracy. CHAPTER VII COLLECTIONS "Going After Money Due" Someone has said that credit is a transfer of commodities involving the return of an equivalent at some future time. The present chapter deals largely with the question of securing this equivalent. In every-day language the act of obtaining the equivalent is referred to by the simple words "collections" or "collecting," which may be briefly defined as follows : Going after money due and not paid in time. These few simple words are vast in potentiality and involve the fundamental laws of credit. They also constitute the basic reasons for the existence of the collection department and the collection manager. Human nature is not infallible, and although the credit man himself may measure up to the qualifications set forth by Colonel Blackstone in his description of the ideal credit man, collecting will always be an absolute necessity so long as credit is granted. One of the commonest failings of humanity is to postpone payment and put off as long as possible the inevitable day of reckoning. On the other hand, as already stated, mistakes will occur in the best managed credit departments. Often the favorable conditions surrounding an account will change completely after credit has been granted, or goods may be delivered on error charges, or secured under misrepresentation and this fact not discovered until too late. When consideration is given to the fact that over 90 per cent of the nation's business is done on credit it is a simple matter to appreciate the many contributing reasons for a col- 84 COLLECTIONS 85 lection department and the necessity for hiring trained and skilful men to handle its work. The burden of converting an account into cash lies wholly with the collection department, and if the credit man is respon- sible for his own collections, as is the case in most retail houses, the security of his position and his peace of mind will depend largely upon his ability to garner in the cash. The Relation of Collections to Capital Because the collection department is "non-productive," as the term is commonly understood, it is often regarded with slight sympathy by many heads of concerns. But its construc- tive powers are far greater than often imagined. The fate of many a business lies within the confines of its collection depart- ment. Capital can best be stabilized by getting in the money when due, for only in this way can the merchant take full ad- vantage of his discounts, which in most cases actually repre- sent his entire net profits. "Turnover" in business is the keynote of success. The word, however, should not be considered only in its application to merchandise, for while quick turnover of merchandise is vastly essential, quick turnover in accounts is even more so, since the former depends so largely upon the latter. Capital is essential to success and a good collection man- ager actually increases the working capital of any business and saves his house thousands of dollars in bank interest. Lack of capital is responsible for one-third of all business failures and can often be traced to indiscriminate credit-granting — in- efficiency in the credit and collection departments. One of the first questions the banker is likely to ask a mer- chant when he presents his statement for the purpose of bor- rowing money is : How often do you turn your accounts ? It is not an unusual proceeding for the bank to cut down all floating assets to determine a safe basis upon which to make 86 THE RETAIL CHARGE ACCOUNT a loan. If a merchant's surplus or capital is equal to, say, one-third of his outstanding accounts, and the bank depreciates these outstandings by 25 or 30 per cent, it can well be imagined how quickly his chances of borrowing are eliminated. Close collecting is consequently essential. It is impossible to overestimate the value of constantly driving after the money. Payment of interest on the customer's part is a poor excuse and a still worse remedy for overdue accounts. The average business man, if he wants to be successful, or even exist, must utilize his capital in a way to earn four or five times what the customer would pay in interest. The following table gives the ratio of amounts collected on open accounts during the first 6 months of 1921 in various cities to amounts outstanding on the first of the same months on accounts receivable. Table Showing Percentages of Monthly Collections Jan. Feb. Mar. Apr. May June Boston, Mass 46.00 51.80 51.80 54.90 Cleveland, Ohio 50.85 58.83 58.14 59.65 56.00 56.47 Detroit, Mich 53-40 50.00 51.70 52.10 51.00 Houston, Texas ... 48.30 46.50 41.50 43.70 43.80 44.80 Little Rock, Ark 29.20 29.50 28.80 29.40 28.70 32.20 Los Angeles, Cal 55-00 59-00 62.00 56.00 62.50 63.00 Memphis, Tenn 42.34 44.75 43.21 43.07 38.30 44.00 Milwaukee, Wis 63.50 46.70 57.60 52.40 52.90 Minneapolis, Minn. . . 71.31 70.69 74.66 68.45 66.00 Newark, N. J 54.10 51.10 53.30 52.80 51.80 50.90 New York, N. Y 66.50 66.50 66.20 66.30 Philadelphia, Pa 89.00 65.00 59-oo 54.00 " " 65.00 70.00 68.00 62.00 62.00 Pittsburgh, Pa 40.87 40.93 39.39 38.79 37.39 " 47-44 46-62 45.71 46.09 " 48-50 48-60 50.70 49.50 44.70 44.30 St. Louis, Mo 44.90 46.00 42.60 44.50 46.20 42.00 San Antonio, Texas... 36.30 36.90 39-20 35-90 38.70 38.40 San Francisco, Cal 40.50 33.10 42.00 36.40 36.90 36.40 Wheeling, W. Va 32.50 31.00 29.00 29.00 31.00 29.00 COLLECTIONS 87 Qualifications of the Collection Manager It is therefore obvious that the successful credit or collec- tion manager must possess more than average intelligence. His position is of the greatest importance, and fortunately the value of his work is securing for him wider recognition every day. He should be a man of tact, patience, and perseverance, of broad experience and trained ability. In addition, he should be a man of vision, imagination, and sympathy. Above all things, however, he should be wholeheartedly interested in his work, for only by being so can he develop the essentials for success. Another highly important attribute is courtesy of the true, unfailing variety. The intelligent collection manager will find this a valuable quality in his work. The old adage of molasses and flies still obtains; not that the manager must accept any excuse from a debtor or lack courage to press his claim and insist upon payment, but in no circumstances must he forget that courtesy, whether in speech or writing, is one of the great governing forces of his profession. This is particularly true of the retail stores where two very important objects are sought — the payment of the debt, and the retention of the customer's good-will: Even though the collection manager may occasionally feel the desire or even necessity of adopting a harsh or threatening attitude, he should never resort to these methods unless he is fully cognizant of their possible effects and is satisfied to as- sume responsibility therefor. A collection manager is grossly incompetent who in the general accomplishment of his purpose loses customers for his firm. The collection manager should remember that even debtors, degenerate as they may appear in his eyes, are nevertheless human, and that somewhere within them reposes a sympathetic cord responsive to the right touch. They should be made to feel that instead of being enemies to society and mankind in general and the collector their Nemesis, he is their friend, ready 88 THE RETAIL CHARGE ACCOUNT and willing at all times to give them the value of his own ex- perience as a collection manager in devising some way of pay- ing their debts. Patience and Courage Again, the collection manager must have courage and not be easily disheartened. There are other virtues symbolized by "P.P." besides "prompt pay," and they are "patience and per- sistency." The collection manager should remember that for- tunes are like Mother Nature — they change with the processes of time, undergoing various forms of revolution and evolution, and while a man may be unable to meet his obligations at one time, he may well be able to take care of them at another. If the debtor is cognizant of the collection manager's dogged pertinacity he may settle voluntarily, and unless the account is outlawed, there are innumerable methods, including the legal one, which may be utilized to bring about the de- sired result. Value of Accounting The collection manager who is also an accountant or a good bookkeeper realizes only too well the great value of this added knowledge. It helps him to keep in faithful and intelligent touch with his work, and to devise and put into operation sys- tems and methods of controlling and distributing his accounts that contribute greatly to the success and efficiency of his department. It also enables him to analyze a business state- ment and appreciate better the value of collection statistics. The Collector as a Correspondent Good correspondence is the greatest asset in successful col- lecting, for the most important and fundamental qualification of the collection manager is undoubtedly his ability to write letters that produce results. Most of his work is accomplished COLLECTIONS 89 by letter, and he should not lose sight of the fact that this method of conveying his thoughts is merely another form of personal conversation. He should develop thoroughly the power of expression, so that he may be able to put behind his letters the same force as when he talks to the debtor. If for lack of opportunity or other causes, the young col- lector or credit man feels he is deficient in this highly important qualification, he should take a course in correspondence under a competent instructor. Nothing will cause him such embar- rassment and humiliation as the inability to express ideas with- out offending customers or without reflecting upon the prestige of his firm. Advantages of Law The collection manager need not be a lawyer, but he will find a good knowledge of common law almost invaluable, for he must constantly keep his eye on eventualities. Especially is this true of a business involving interstate transactions. For instance, in the instalment business or in a business where sales are made conditionally or under consignment contracts, the different states offer a wide variation of opportunity for apply- ing a knowledge of law. In some states, for example, the law requires that a certain proportion of the amount already paid by the customer must be refunded before the goods can be re- plevined under an instalment contract, no matter what the terms of the contract. The collection manager should also know law to appreciate how far he can proceed without risking libel. In other words, he should possess sufficient knowledge of the law to respect it and keep out of trouble. Co-operation Between the Credit and Collection Departments The credit and collection departments are so closely allied that a constant spirit of co-operation and friendly intercourse 90 THE RETAIL CHARGE ACCOUNT should exist between them. The collection manager cannot successfully carry out his work in the collection of his accounts unless he is in a position to ascertain promptly and correctly the credit standing of the delinquent. Without this informa- tion he might as well purchase a set of dunning stickers and turn the work of his department over to the office boy. Failures, deaths, divorces, crime, financial disasters, and other disturbing happenings bearing upon their customers should be discussed very fully and freely between the two departments and any information, derogatory or otherwise, affecting the accounts should receive prompt explanation. When a large account is considerably overdue, a little as- sistance upon the part of the credit department in making a revision of the customer's references will frequently reveal in- formation which will often determine the best steps to pursue in bringing about a settlement. Complaint Department The collection and complaint offices should work very closely together. Occasionally payment is held up by reason of some complaint, and anything of this nature relating to charges should be immediately communicated to the credit or collection department. Many a good account has been lost through neg- lect of this important detail, as there is nothing more irritating to a customer with a just grievance than to be the recipient of a series of duns, pending the adjustment of her complaint. It is a very good idea to have in the complaint department a special book for the listing of all charge complaints, and where the volume of business warrants it is still better to have a sepa- rate complaint department for all charge matters. The Outside Collector It is a great mistake to imagine that any individual can fill the important position of outside collector, and the collec- COLLECTIONS 9^ tion manager should be more than particular about the ability, manners, and dress of the man he sends out to represent him. He should not forget that the collector is a representative of the house and that the language he employs in his interviews reflects, from the customer's point of view, the firm's attitude toward her. The collector should be courteous, energetic, and persistent, and should possess sufficient intelligence and knowl- edge of human nature to approach a customer tactfully,. The failure to obtain a reply to requests for payment may often arise from other causes besides neglect or inability to pay. Sickness, death in the family, or an extended absence from home, frequently cause delay, and a house that spends its time and money in building up its charge clientele does not want and cannot afford to have the structure ruthlessly torn down by ignorant, insulting, and oiTensive methods on the part of its collectors. Nothing is so humiliating to the average woman as to have individuals using such methods call upon her. Proper training of collectors at the beginning is highly important. They should be made familiar in a general way with the business of the house, so that they can discuss the accounts they are handling in an intelligent manner if customers raise objections or make excuses for further delay in meeting their obligations. A good collector in the event of non-payment obtains a defi- nite promise for the near future. He also brings back to the credit man all the information he has been able to glean regard- ing the debtor, his apparent financial standing, his reputation in his community, the quality of house he maintains, and the nature of the district he resides in. The work handled by the collector should be done in a systematic manner, and all reports and promises brought in by him should be properly filed, and the diary dated. He relieves the office of much detail by doing his own routing and follow- up. 92 THE RETAIL CHARGE ACCOUNT A simple system is the collector's daily report sheet, which shows at a glance what he has accomplished. This should be made in duplicate, one copy being left at the office, and it should contain the ledger folio, name and address of customer, amount of debt, amount collected, and a space for the collector's report. As for the collector's compensation, it is good policy to pay him a salary and a commission on the amount collected. This creates an incentive and adds greatly to the success of his work. Do not hire the cheapest man you can find. A few dollars extra will prove a wise investment and will earn for the house the respect and continued patronage of its customers. Classification of Debtors Debtors may be classified under four headings known as : 1. Prompt-pay. 2. Slow-pay. 3. Bad-pay. 4. Won't-pay or judgment-proof. I. Prompt-Pay The first of these classes requires little or no discussion and comprises those debtors who take care of their obligations voluntarily, either upon receipt of the bill or within a reason- able time thereafter. They usually require no prodding or watching. The collection manager should take care, however, not to drift into the common error of allowing the good-pays to obscure his sense of judgment. . A scrutiny of their ac- counts from time to time is essential, otherwise he may find himself a victim of the old confidence trick : "A few prompt payments and a legacy in the form of a big bad debt," or to put it otherwise: "A perpetual reminder of misplaced confidence." W. H. H. MacKellar eulogized members of this class in a short article that appeared originally in Roycroft Magazine. COLLECTIONS 93 The appreciation, headed "The Man Who Pays," lias been reprinted in the form of envelope enclosures by the publishers, and reads as follows : The will to pay is hereditary, just as much as red hair or buck teeth. It is a common fallacy that a man pays his debts because he has money. This is not necessarily true. On the contrary, the matter of paying has only a remote relation to money. On the one hand is your friend with abundance of money, who can not be cajoled, threatened, beaten or gassed into paying the most ordinary debt. On the other hand, the poor fellow without a visible dollar — you know him — who is Johnny on the Invoice. Money has little to do with either case. It is the breed of the man. The man who pays is the man who thinks in advance. He never flashes a roll ; he does not drive a car and carry a mort- gage at the same time ; he does not hang up the butcher, or the grocer, for food that he can not afford t^ eat ; he never lights the fire without wondering where the coal man gets off. He never throws the Bull, nor pitches the Bluff, nor gives notes nor writes checks dated tomorrow, but when the bills come in, he is there with the coin of the realm, God bless him. Sometimes he feels sore at the rest of us. He does not see that he gets on any better than the fellow who skins as he goes. Still he goes on and on, pays and pays simply because it is in the breed. And after all, the World does think a lot of his breed. The man who pays is the bulwark of Society. He is the balance wheel of civilization. He is the mainspring of commerce. Busi- ness blesses him and he has honor among men for all time. 2. Slow-Pay Under this caption conies a large percentage of the store's accounts. If the credit man were allowed to accept orders only from customers of proved credit standing and prompt pay, refusing those concerning whom there was the slightest ques- tion, there would be no need for the collection department. To exist, however, stores must have trade. To refuse to sell to 94 THE RETAIL CHARGE ACCOUNT slow customers would be to cut off a large portion of business and a very substantial portion of profits. Since, therefore, it is the desire of the average credit man to sell to all who will eventually pay, and refuse credit only to those who will not, retail stores will always have the slow-pay upon their books. Debtors who come in this class either cannot or will not pay their bills on time. They also find their way into this category from many other causes, such as temporary financial embarrassment, poor management on the part of the debtor in not keeping his personal expenses or those of his family within the limits of his income, indiscriminate credit-granting on the part of the credit department, and too much latitude or indulgence in per- mitting the customer to acquire the slow-pay habit. Many, also, can be found in the slow-pay class who are strictly honest and of perfectly good intentions. Occasionally circumstances entirely beyond their control will put those who are usually prompt-pays into the class of slow-pays, much to their own chagrin. These cases require careful and special consideration, and the collection manager should study the conditions very care- fully before arbitrarily going ahead to push his claim, as such hasty action may add to the confusion and embarrassment of the debtor and possibly delay still further the payment of the account. The collection manager's experience should enable him to suggest means to the debtor for making settlement, and it is the common experience that unless the debtor is hopelessly down and out a little sympathy on the part of the collection department will make payment reasonably sure. Again, there are people, such as farmers, who depend upon the seasons for their incomes. Farmers could not possibly trade with a house if it held them to its thirty- or sixty-day terms. They must be permitted to make, within reason, their COLLECTIONS 95 own terms, which depend largely upon the growth of their crops and the returns from marketing them. There are also some men who, upon finding themselves the victims of adverse circumstances — or when forced into a bad condition by sheer incapacity — seek refuge in the socialistic doctrine that "the world owes them a living, and they don't propose to starve in order to pay their debts." Slow-pays invariably show an utter disregard for the specified terms of purchase so long as they keep within the boundaries of credit safety in so far as it affects their credit standing. Although they ultimately pay their accounts, they do so according to their own conception of promptness, but all too frequently not until they see the danger signs. Great care should be exercised by the collection manager not to allow the slow-pay habit to develop until it is dangerously near the barrier dividing the slows from the bads, for it be- comes increasingly difficult to insist upon prompt payment if the customer has previously been permitted to take several months without protest. Careful consideration must always be given to the cause of the debtor's becoming slow-pay. The collection manager who keeps himself posted on the debtor's circumstances will fare best in this matter. Slow-pay customers, however, should be handled with great care, and every effort made to effect settlement in a way to hold the customer's good-will and patronage, because it is quite usually a very profitable and dependable trade. 3. Bad-Pay In this class are usually found those who can pay but will not until forced. Despite the utmost precautions the credit de- partment may take, they will occasionally get on the books of the store and are liable to reflect upon the efficiency of the credit department. 96 THE RETAIL CHARGE ACCOUNT They are a menace to the peace of mind of the collection manager and the tranquillity of the collection department. Duns, all the way from pleading persuasiveness to threats con- juring up visions of dire consequences, have no efifect upon these hardened sinners. They are absolutely indifferent to any unfavorable credit opinion, seeking only further opportunities to exercise their rascality. They make promises, which have no value because they are never kept. No sympathy should be shown where a man has earned a reputation as a chronic bad pay, and if by some oversight he secures credit, every conceivable kind of pressure should be brought to bear upon him to make him pay. There are many systems in vogue to help the collection manager in keeping relentlessly after this type of debtor, such as collectors, commercial agency blanks, attorney letters, awkward calls, garnishee notices, and threats of prosecution. 4. Won't-Pay or Judgment-Proof Debtors who come in this class are usually those without responsibility, property, or even conscience. The professional deadbeat enjoys these characteristics. These accounts, however, should be rare and the uncollectible ones still rarer. They usually find their way into the bad department ledger, which is the graveyard of the credit depart- ment since this is the place where the unfortunate mistakes of the credit man are buried. After an account is written off, however, it should not be entirely forgotten, for a debtor's fortunes may change for the better; he may succeed to property, inherit wealth, or for any of a number of other reasons deem it expedient to pay, more particularly if he finds the collector is still after him. The collection department should never abandon hope of recovering a debt even though it languishes in the Profit and Loss account, for it is never really bad unless the debtor leaves COLLECTIONS 97 the country without trace, or dies and leaves to posterity noth- ing more substantial than his unpaid bills. Collection Systems . In the first place, the collection system adopted must depend largely upon the policy of the house towards its patrons and the leniency it desires the collector to exercise in handling delin- quents. It is therefore a very good idea, particularly for a credit man entering a new place of business, to ascertain the senti- ment of the house in this respect. There must, however, be a well-established policy wherever he is and perfect co-ordina- tion betv/een all branches of the business affecting the credit and collection departments. There must be a proper system for insuring the systematic handling of accounts when they become due, and for prevent- ing them from being overlooked, otherwise it will render col- lections all the more difficult, make dunning haphazard and incidentally inviting loss. The Overdue Account One of the first things the collection manager must decide is : When is the account overdue ? Some houses consider an account overdue when it is not paid within thirty days; other houses allow sixty days; still other houses, of which there are many, consider their customers prompt if they settle their accounts in ninety days. In fact, a credit manager of a large firm states that in his house many customers are permitted to take six months' credit and still retain their good standing. When an account is to be regarded as overdue must, therefore, be determined by the individual circumstances of the case and the policy of the house. Generally speaking, an account is overdue if it is not paid in ninety days, at which stage it should ordinarily be trans- ferred to the collection department for attention. 98 THE RETAIL CHARGE ACCOUNT Many houses have a set, mechanical system of collection which works like a machine. On the first of the month the customers receive their bills, on the fifteenth of the following month a statement, on the twenty-fifth a No. i letter, on the tenth of the following month a No. 2 letter, the twenty-fifth of the same month a No. 3 letter; and then in the early part of the third month a reminder that if the account is not paid in ten days it will be turned over to attorneys for collection. This is a very unwise method, for if there is one thing more than another for the credit or collection manager to guard against it is to sacrifice his individuality and allow his work to resolve itself into a mere mechanical process. When an account reaches the stage of delinquency it should be governed in accordance with its own peculiar conditions. Especially is this true of many of the good accounts, for certain individuals, such as senators, congressmen, and state officials, are required to absent themselves from home for extended periods at a time, and nothing more quickly inclines them to close their accounts than to find upon their return a series of duns, increasing in the violence of their tone. The first statement following the itemized bill is usually sent out by the bookkeeping department and should contain a polite reminder of the firm's terms, preferably printed in red to command attention, as : "Terms : Cash payable monthly." One large Boston house has on all its statements something like the following : For the convenience of patrons who are large purchasers, we are pleased to keep an account of the entire month's shop- ping to be paid for promptly when itemized bill is presented. In fact, nothing is lost by having the charge terms printed boldly on all dunning literature. When an account is delinquent, a statement should be made out and turned over to the collection manager, who in turn COLLECTIONS 99 should make a record of it on a collection card. On this card should appear all possible information regarding the account, so that the collection department may proceed intelligently with its work. Space should be provided in which to list the date and nature of letters sent out and replies, if any, from the customer. It should also contain any information received from the outside collector. On it should also appear a record of collections. The general ledger should be so marked that no cash can be posted or other credits entered without being brought to the attention of the collection department whose records will be thus kept in order. From this stage on, the work of getting in the money will rest with the collection manager, and his modus operandi will depend^largely upon his own intelligence and ability. Value of FoUow-Up A perfect follow-up system, however, is undoubtedly the secret of successful collecting. One thing the collection manager must bear in mind is that the events of the day are too crowded and pressing for him to try to commit his work to memory. He should therefore have a system of daily reminder if he is to avoid trouble. The best system is that commonly known as the "diary dating system," which usually consists of two or three sets of files or folders numbered con- secutively from I to 3 1 and representing the current and one or two succeeding months. When a special letter is written re- quiring an answer, it should first be noted on the collection card and the duplicate or memorandum of it should be filed under the date set for a reply. The same procedure applies to promises made by the debtor which should be placed under the date of agreed payment. In this way nothing is left to chance, and whether the collection manager forgets or not, the matter will turn up automatically on his desk every few days. With such a system there is lOO THE RETAIL CHARGE ACCOUNT very little possibility of accounts getting considerably overdue, or approaching the bad debt stage without the collection or credit man knowing it. Before reaching the collection manager's desk the daily folder should first be taken by the bookkeeper to have the receipts of any payments or communi- cations from the debtor noted on the memo awaiting reply. Some credit managers require that only the unanswered mat- ters be left in the folder. It has been found wise, however, to have the collection de- partment leave all letters in the folder until they have been seen, as there is a certain amount of satisfaction in going through the file and noticing the progress of collections. This is particu- larly true of accounts causing the collection manager worry. If an account is of considerable proportions and collection letters have produced no results, the matter should be referred back to the credit man for instructions regarding further action. Even when the account is finally settled it should be re- ferred to tlie credit man, who will then determine whether any further credit should be granted. Where any considerable difficulty has been experienced in effecting settlement it is sometimes more advisable to close the account entirely, in which event all information accumulated during the process of collection should be filed, with the application, for future reference. In fact, it is a very good idea to file all collection correspondence with the application if the account has been troublesome, for if the customer should again become delin- quent, a glance at the files will immediately disclose the previ- ous experience, and a much quicker settlement may result if the debtor is reminded of his former habits. Part Payments If, in the process of dunning, the debtor makes a payment on account, the fact should be communicated immediately to COLLECTIONS lOl the credit manager, because it is usually an indication on the part of the debtor that she is unable to take care of her obliga- tions in full or according to your terms. The knowledge will play a large part in determining future dealings with the customer. It is a very bad practice to encourage part pay- ments, particularly on regular accounts, because it is somewhat difficult to take objection to this method of payment once the customer has been permitted to develop the habit. Attorneys and Legal Proceedings Many collection managers hesitate to take legal proceedings or transfer accounts to attorneys for collection for obviously good reasons. For one thing the transfer of the account practically breaks off further business relations with the debtor. Again, the credit department is apt to harbor against the debtor a feeling of resentment and distrust and is not inclined to check him again, even though his account is paid and he is still worthy of credit. Finally, and by no means the least im- portant reason for the collection manager's hesitation, there is the difficulty usually experienced in obtaining returns from an attorney. It is often more difficult to collect an account from an attorney than from the debtor himself. The professional lawyer as a rule is a poor collector and a still worse business man, and when once the account passes into his hands, it usually requires vigorous following up on the collection manager's part to achieve results. Some lawyers, however, specialize in collections, and if, after all other processes have failed, it is deemed expedient to use an attorney preference should be given to such specialists. Settling Claims Out of Court It should be the aim of the collection manager whenever possible to settle claims out of court. To do so is not only I02 THE RETAIL CHARGE ACCOUNT highly commendable in itself, but it will earn for him the good-will and appreciation of his firm. No house desires to earn a reputation for the number of lawsuits it brings against its customers. In fact, the name of the house to which the money is owing rarely appears in an action at law, which is usually brought in the name oi an assignee. Collection Letters and Correspondence In no branch of the credit and collection man's work is diplomacy and discrimination more needed than in letter-writ- ing. The very foundations of the various collection systems are the letters employed. Every reader is no doubt familiar with the quick collection systems, which usually consist of a series of gaudily colored stickers and rubber stamps, commencing with "Please remit" and ending with a threat to commence suit unless the account is paid in so many days. This kind of system may have been satisfactory in the dim and distant past, but is wholly im- practicable for present-day needs. In these times of liberal- credit and keen competition the collection letter must be something more than a mere demand for payment. It must not only overcome the debtor's natural reluctance to pay his bills, but it must accomplish it in a way not to ofifend, particularly if it is desired to retain the customer's good-will. In almost all collection letters the credit man is between two fires. If his demands lack force the results may be disappoint- ing, and if they are too strong he risks losing a customer. To be able to strike the happy medium is what counts most in his success. It has been often said that the art of letter-writing is a lost art, and a glance over the average collection letters would seem to go far to substantiate this statement, for one letter is as much like the other as the proverbial two peas. They engender COLLECTIONS 103 the suspicion of having been copied from some universal correspondence manual. The fault with most collection letters is that they lack the grip of personality. They do not sound natural nor anything like the spoken language used when the collection manager has the debtor before him. After all, a letter is merely a con- venient way of saying something to someone not within hear- ing distance. Collection letters should, therefore, contain as much of the personal element as is infused into conversation. There is an ever-present tendency in collection letter-writ- ing to indulge in expressions not characteristic of the writer — which he would not use if he were talking with the debtor in his office. Stilted or conventional phrases and long involved sentences should be avoided. The essentials of a good collec- tion letter are clearness, terseness, diplomacy, persuasiveness, and forcefulness. Above all things the letter should be dignified and courteous. Rudeness, bluntness, and sheer brutality will achieve little. While a good business letter should be brief and terse, terseness should not be carried to the point of brusqueness or it may become offensive. Many a man who prides himself on the frankness and plain-spokenness of his letters is often flat- tering himself, for, far from being frank he is simply blunt, and nothing gives offense more quickly to almost any customer, let alone the sensitive ones, than a brusque tone. A generous use should be made of paragraphs so that the points it is desired to emphasize may be brought out in clear relief. Avoid Excuses The demands should be made with firmness. In writing letters to delinquents no apologies should be made for seeking payment. The money is due and it should be paid. Nobody knows this better than the debtor himself, and excuses simply I04 THE RETAIL CHARGE ACCOUNT weaken the collector's demands and encourage the debtor to withhold still further the payment of the bill. The debtor should never be allowed to infer that if it were not for pressing circumstances he would not be asked for the money he owes, for otherwise he may very reasonably assume that the house has no real objection to carrying his overdue account so long as its financial condition permits. The use of slang should be avoided. It detracts from the dignity of the letter, and while it may sound clever to the writer it will probably produce more amusement, at his ex- pense, than money. In this connection the writer often recalls a copy of a letter he once saw in the office of a Providence manufacturer, sent out by a young man fresh from college. It read somewhat as follows : To take two months to pay your bill is bad enough, but to take a discount in addition is, in our opinion, "crowding the mourners a little too much." Form Letters Form letters can be utilized to very good advantage provid- ing they are used with discrimination. Great care, however, is necessary in their composition, and the mistake should not be made of writing one set of letters to be used in all cases. For instance, the demands sent out for a $50 account cannot always be used for a $500 account. Each case must be handled according to the conditions connected with it. The credit and collection man may nevertheless employ form letters very successfully, especially if they guard against the all too frequent error of becoming too mechanical in their use. Form letters should vary in style and be revised at least Once every six months. Otherwise they become familiar to the debtor and lose the effect they are calculated to produce. Where the amount of collections is considerable it will be COLLECTIONS 105 found a very wise investment on the part of the house to install its own mimeograph machines to fill in the letters with the same shade of ribbon. In the case of form letters printed outside, care should be taken to secure a ribbon which will match in color. This is of the greatest importance, for it is not difficult to imagine why form letters in which the color of the name and address varies several shades from that of the body of the letter all too often reach the wastebasket without being read. Taking Advantage of Local Conditions The collection manager should always take advantage of every opportunity the circumstances of his position afford him. For instance, if he is acting for several stores and happens to be making a collection for a branch establishment, the effect of introducing the name of his head office into his letter usually has good results. It also puts him in a position where he can appeal to debtors without personally incurring their displeasure or criticism or even jeopardizing their patronage. The following extracts from some letters which have been sent out will better illustrate the point : Dear Madam: In closing our books for the half-year our auditors were required to draw the attention of our head office to all accounts over 90 days old, etc. Again : Dear Madam: We are required to file with our head office on the 10th of each month a list of all accounts of 90 days' standing. In this connection, etc. When purchases are made on an account already overdue the collection manager at a branch can also refer to the head office somewhat in this manner : Io6 THE RETAIL CHARGE ACCOUNT Dear Madam: We thank you for the orders which you kindly placed today, but regret to notice upon glancing at your account that purchases made as far back as still remain unpaid. As we are not per- mitted by our head office to compile accounts month after month unless the preceding account has been taken care of, etc. The manager can emphasize the matter to the point of threatening to withdraw the privilege of charge or commence suit, and he can do so in such a manner that the customer may pay the bill and still trade with the house, as for in- stance : Dear Madam : We regret we have had no response to our several communications regarding your overdue account. We particularly regret this, inas- much as we have received instructions from our head office to transfer all accounts of six months' standing to our attorneys for adjust- ment. The writer feels however that there is no occasion to take these arbitrary steps in your case, etc. The writer had occasion to press a customer whose account had reached the point where a final effort was made before transferring it to attorneys. He wrote to her the following registered letter, which brought the desired check : Dear Madam : We are at a loss to understand why you continue to ignore our communications regarding your long overdue account. The writer particularly regrets this as he is receiving no small amount of criti- cism from our head office for not taking action sooner. We thought, however, when credit was granted that you would take care of your obligations promptly when they became due, and still think it is your honorable intention, etc. Frequently the credit man can assume an attitude of sur- prise and obtain very good results by writing letters similar to the following: COLLECTIONS 107 Dear Madam: On the first of every month there is placed on my desk a list of all overdue accounts, and I regret to notice that there are items still open on your account dating back for a longer period than 90 days. This somewhat surprises me as I was under the impression, etc. This kind of a letter is particularly good where the collec- tion manager knows the debtor or where he or she happens to be of good standing. It should be sent out from the executive office, signed by the collection manager. In almost every case the recipient will acknowledge it. There are other special cases where an appeal to pride, vanity, or integrity will produce equally good results. Many times good accounts are found on the books, fear- fully slow but still highly desirable, and the collection manager hesitates to threaten suit even after the usual processes ot dunning have failed. In such cases, even though it is known that the husband is cognizant of the debt, it is well to assume that he is innocent of the knowledge. He is thus placed on a pedestal of virtue, as it were — a position where he must either justify the assumed impressions of him by promptly remitting or admit his knowledge of the delinquency. The following letter has been found to produce excellent results and in nine cases out of ten has brought both a check and a letter of apology : Dear Sir : Repeated applications addressed to your residence regarding the enclosed account dating back to last having elicited no re- sponse whatever, we can only assume that the family must either be away from home or that our correspondence has not been reaching you. We have therefore taken the liberty of sending this to your busi- ness address — taking the precaution to register it — so that it may reach you personally, when we know the matter will receive immediate consideration. I08 THE RETAIL CHARGE ACCOUNT Our records indicate that it has been your practice to take care of your accounts promptly when they became due, and it is naturally our desire to obviate any adverse rating which you might otherwise suffer over a matter with which you have possibly not been made familiar. Regretting the necessity of troubling you and thanking you for your esteemed patronage, we are. Yours very truly. The Retail Store. Conclusion There are many additional methods of collecting accounts, among which the following may be mentioned : registered let- ters, credit threats, commercial agency duns, telephone calls, telegrams, awkward calls, i.e., calls at a time most inopportune to the debtor, and corresponding attorneys CHAPTER VIII SUSPENSE AND PROFIT AND LOSS ACCOUNTS "Annual Bad News" The success or failure of the credit man as a business manager is very often determined by the amount he writes off into his profit and loss ledgers, and the "annual bad news" may be bad news or not, depending on how well he has judged his risks during the past year and how well, also, he has fared at the hands of Dame Fortune. Selling merchandise would seem to be one of the most important things that a store has to do, and yet after the goods are sold no profit accrues unless they are paid for within a reasonable period. Any material deviation from the regular terms of payment affects the profit, and if any accounts fail utterly of collection, the loss is, of course, absolute. Just how much the loss from the customer's failure to observe the terms may amount to and the account be still profitable is determined by two factors : first, the nature of the business itself and the customs of the particular trade, and second, how much the particular store is willing to allow in losses for advertising or promotion expense in acquiring new charge business. Segregation of Poor Accounts Before we discuss the question of what constitutes a high or low ratio of loss, we must consider the office procedure for properly establishing the essential records, and point out some faults which in many offices contribute in large measure to an increase in the amounts eventually charged to bad debts. Too many firms are willing to spare no expense in the 109 I lO THE RETAIL CHARGE ACCOUNT installation of the latest and most elaborate system of book- keeping records, and pride themselves on the speed with which postings can be made and statements mailed to their customers ; but they lose sight utterly of the fundamental reason why books are kept at all, namely, to show at all times the true state of their accounts. In every properly conducted accounting department there should be a suspense ledger and a profit and loss ledger. As indicated by their respective titles, all accounts in suspense, such as attorney accounts, bankruptcy matters, estates being adjusted, wills in probate, accounts whose value to the house are problematical but whose actual loss is not yet determined — in short, all matters floating on the turbulent seas of business hopes and without a definite port to put into— are to be trans- ferred to the suspense ledger. This should be done, first, as a matter of convenience and protection, and second, so as not to confuse such items with the live accounts receivable which are being carried on the books at a full I GO per cent of their face value. The books of too many stores carry large amounts as good which only represent deferred hopes and which should have been written off years ago, so little real value do they possess. These stores go on year after year setting up figures purporting to be exact which would make a sorry showing if put to the acid test of a real examination of true values. Records on Suspense Accounts Every account placed in suspense should carry its own folder, to contain all previous correspondence with the customer, also sales checks and copies of bills covering the items in question, delivery records, and, where possible, proofs of delivery — in short, any bit of information that may sub- sequently be of value in collecting the account. This information has a peculiar habit of being wanted just SUSPENSE AND PROFIT AND LOSS ACCOUNTS HI when it is not readily available; either the original clerk has left your employ, or the customer's signature is lacking, or some other apparently inconsequential item drops out of sight at a crucial moment, all because of a lack of a little fore- thought at the proper time. "For want of a nail the shoe was lost." The outside of the folder, besides bearing the usual in- formation, such as name, address, business address, and con- nections, should be ruled for special notices to indicate the status of the account, such as the amount of the indebtedness, period covered by the purchases represented thereby, reason for non-payment, date on which the account was turned over to an attorney, when action was instituted, date and amount of judgment, execution, supplementary proceedings, general remarks, and any other notation that may at any time be of assistance. Time-Saving Device It will be found that a great deal of time can be saved if the essential points of information of any account so trans- ferred are transcribed directly upon the ledger sheet itself, as this obviates a great deal of unnecessary reference to the original papers in the case. At the end of the fiscal year it becomes a simple matter to go over the suspense ledger and determine at a glance just what accounts are to be written off as worthless, or at any rate are not to be carried on the books in any form except as a possible loss. It may be felt in many instances that the full amount ought not to be charged off this year. The prorated amount can then be transferred and a complete adjustment made at a later date. Especially is this true in a case in bankruptcy on which a dividend has been declared but is not paid when the books are closed. Supposing a dividend of 25 per cent has been authorized, the balance of 75 per cent may properly be charged 112 THE RETAIL CHARGE ACCOUNT off during the present period, it being quite certain that further efforts to collect the balance will be unavailing. Collection Efforts Just because an account has been transferred to Profit and Loss, its collection should not be entirely given up or even despaired of. For, as the world has its ups and downs, so the one who today is possessed of no realizable assets may tomor- row be blessed with plenty of this world's goods. So also the "skip" who has temporarily been lost track of may be discovered through a new telephone listing or some other directory. Not a bad plan is to go over the names in the profit and loss ledger several times during the year and check them against the latest directories in the office. A "moral suasion" letter sent out at this time to all such accounts is one method of bringing in a surprising amount of money, which can rightly be termed "found money." One method of outside collection coming into considerable use just now is to play on the debtor's fear of publicity and the unpleasant notoriety which may be occasioned by having his debt advertised for sale. As mentioned in the chapter on collections, it is advisable to reduce all accounts to judgments, for there is no telling when the debtor will have some property against which the judgment may become operative. It is quite a general ex- perience that the old, worn-out debts are often agreeably re- juvenated. At most unexpected moments inquiries come into the office as to whether or not such debts have been previously settled. From an accounting point of view, just how are items of cash thus collected to be treated? Are they simply to be paid in on the private ledger and is no further record of them to be made, or should they be paid in on the current suspense ledger and later applied against the profit and loss statement SUSPENSE AND PROFIT AND LOSS ACCOUNTS II3 for the current year? The second method seems to be the more equitable and minimizes the amount to be written off. Legal Aid Should the house have its own attorney to attend to col- lections, or should it refer all such matters to a lawyer with offices located outside of the store building? The most satis- factory procedure seems to be that of engaging a lawyer with the necessary qualifications for a successful collection man at a salary and under such other conditions as will enable him to make a good living for himself and yet devote all his atten- tion to the store's legal matters, at least, in so far as they pertain to collections. Under this arrangement the papers and records involved in collection matters never leave the house, and any further adjustments necessary to close out accounts may be made with the utmost dispatch. Not only does the store want to collect the money legally due it, but where possible, it desires to leave the customer in such a frame of mind that it may look forward to a continuance of his patronage even though on a cash basis. The outside attorney generally has so many other irons in the fire that unless he is prodded at frequent intervals the store's interests are in danger of being overlooked. Very often it is harder to get results from the attorney than from the debtor himself. This naturally makes credit managers reluctant to turn an account over to an outside attorney except as a last resort, and consequently only those accounts finally pass to the attorney on which collection without suit is pretty nearly hopeless. It is unfortunate both for the attorney and his client, that the attorney's fees are to a great extent in proportion to the collections he effects, since by this method the attorney's earn- ings are curtailed, and the accounts of the client are tied up for a period longer than would otherwise be necessary. 114 THE RETAIL CHARGE ACCOUNT On claims of $50 or less which have proved uncollectible through the usual methods, some houses follow the policy of taking the loss and not resorting to court, arguing that the good-will of the customer will be saved. This is a strong evidence of weakness in the credit department. No house operating on correct principles will hesitate for one moment to avail itself of the benefits of the law to enforce the payment of just debts due to it. It will secure judgments in order that the fact of the unpaid claims may become widely known and that the accounts, even though not now collectible, may remain as liens for at least twenty years on any real property the debtor may become possessed of, and be renewed even beyond that period. Charging Off Bad Debts How much may be charged ofif to worthless accounts dur- ing a normal year and still be considered as being within the bounds of good procedure? One credit manager will say that he can keep his losses down to 1/20 per cent of the total charge business; another will place the amount at i/io per cent; and another figures his losses at .19 per cent and still another at .25 per cent. There is a considerable variation in the amounts charged ofif yearly, and assuming that the calculation has been fair and on a uniform basis, the inference would be that the first man was a marvel of expertness in his line and the last unlucky, to say the least. How much has the first man lost to his house in perfectly good business which might otherwise have been properly entered on the charge ledgers without incurring any undue risk? The retail store cannot sell to gilt-edge risks only; if this were possible a credit office would not be necessary. It must, there- fore, take on many accounts which do not measure up to all the qualifications set forth in Chapter III, "Opening the Account." On the other hand, by extending credit within reasonable SUSPENSE AND PROFIT AND LOSS ACCOUNTS 115 bounds, charge sales can be increased, and the losses incurred beyond the proverbial irreducible minimum can well be con- sidered as sales or promotion expense. Some credit men make their losses appear small by applying against them such items as unclaimed credits, either cash or merchandise, or both, without recognizing the fact that a loss is a loss, and a true ratio is to be determined only by a com- parison of the actual losses with the total retail charge sales. The proprietor or firm should profit by such miscellaneous credits only when they make their appearance on the general balance sheet. CHAPTER IX INSTALMENT ACCOUNTS Handling Instalment Accounts The handling of instalment accounts is much the same as that of regular charge accounts, and yet there are many credit men who seem to feel that a conditional sales contract is an easy proposition. The old instalment method, time plan, or so-called "excitement plan," otherwise known as "a dollar down and a dollar when they get me," puts the credit manager as much on his mettle as any other form of transaction with which he has to deal. It also brings him into closer contact with his customer as an individual. Very frequently the extension of credit is based on the credit manager's judgment of the applicant after a confidential talk with him, quite apart from any statements the applicant may have made as to his business connections or other evi- dences of financial responsibility. Information on Instalment Application Form The essential elements mentioned in the chapter on opening accounts carry the same weight in connection with the instal- ment business. The application should show the following : I. The name in full including the middle initial. In a great many cases the transaction is directly with the wife, who in the majority of states has the right to buy and sell in her own name. Hence her name should appear on the contract and application blank, and not her husband's. For instance, the index of an account opened by the wife of Thomas P. Jones, and all other records should show her own individual name, as ii6 INSTALMENT ACCOUNTS 1 1? "Mary D. Jones," and not "Mrs. Thomas P. Jones." This point of precaution is found valuable in proceedings to re- possess merchandise from a customer upon default of payment. 2. Complete home address of the purchaser, including apartment number or suite letter, must be given. This facili- tates delivery of mail and helps the investigator when the account becomes delinquent. Unless this information is at hand it often proves difficult to locate a customer residing in a large apartment house or apartment hotel, as janitors and even the renting agents of the property are not always as thoroughly posted on their duties as they should be. Often- times the purchaser is living with or subleting from another person whose name is entirely different from the customer's. If the apartment number is given it is an easy matter to locate the delinquent. 3. The length of time the applicant has resided at his present and previous address. The applicant with two years' residence at his present address, or some other reasonably long period, is likely to have more stability than the one who has been stopping two weeks at the present address and two months at the previous address. Where the customer gives evidence of having moved around a good deal, his application is naturally subjected to a great deal closer scrutiny. The credit man should make a careful study of the various localities and neighborhoods of his city. While he cannot always judge a person by the external appearance of his home and neighborhood, the address has nevertheless a great deal of bearing on the application. The credit man will save him- self much trouble if he learns to know one neighborhood from another and is constantly on the watch for sales in certain districts and houses. In short, a good motto for him to follow is : "Keep your eye on the address." 4. Does the customer own his home? As stated elsewhere the ownership of property is another evidence of stability on Il8 THE RETAIL CHARGE ACCOUNT the part of the customer. Other things being equal it is an indication in his favor, although there are a great many in- stances of property-owners being under heavier expense and having less money to spend than their tenants. In any event the records should be searched to confirm the statement of ownership and the information should be placed in the report folder. It is also desirable to know the value of the property and the total amount of encumbrance upon it. 5. If the address given is that of a boarding house or hotel, it is necessary in a great many states to notify the proprietor or owner that the merchandise sold to the customer on a conditional sales contract, or on chattel mortgage, is the property of the vendor or that there is an obligation resting upon it until paid for in full. This prevents the attaching of mortgaged property if the purchaser departs for regions un- known leaving an unpaid board or hotel bill. In all cases where the customer is living in a boarding house the pro- prietor's name as well as the customer's should be obtained. Where the customer lives, or the merchandise is to be shipped, beyond the metropolitan district the transaction should be given more than the usual scrutiny and the initial payment should be very substantial. Collection of such an account may prove troublesome and in the event of repossession of the prop- erty there will be the extra expense of crating and shipping it back to the warehouse. 6. If the purchaser is a married woman she should fur- nish her husband's full name, place of employment, length of time employed there, and his position. The same informa- tion, of course, should be given regarding herself if she is employed. 7. The applicant's age is very important, as this is the most essential fundamental of contractual ability. Should there be any appearance of her being under age, the customer should be questioned definitely on the point. Contracts signed INSTALMENT ACCOUNTS 1 19 by a minor are of no avail unless affirmed by the minor upon arriving at legal age. Many embarrassing situations have re- sulted from selling merchandise to minors either on open accounts or on contracts. If the applicant is a minor and the sale is still considered desirable, the guaranty of a parent or other responsible person may well be accepted. This other person may also be asked to sign the contract with the original purchaser, or act as comaker on the mortgage. 8. Local conditions and customs of trade will govern to a large extent the question of desirability of selling to colored people, workers in factories, farmers, foreigners, or others whose occupations and nationality do not lend themselves to a ready classification. Some firms find it a particularly fruitful sort of business to sell to skilled mechanics who have been connected with their respective establishments for a reasonable period, even if they are not American citizens and do not measure up to the commonly accepted standards of a desirable credit risk. 9. Time sales to clubs and associations must be investi- gated and watched very closely. It is advisable to run down the references thoroughly and ascertain the business connec- tions of the principal officers. Contracts of this sort are more acceptable when accompanied by the signatures of responsible individuals or by security of an unquestionable nature — es- pecially so, if a heavy initial payment is made. Terms of Payment The terms on which various kinds of merchandise are to be sold, the amount of initial payment, and the length of time to be required for paying the balance, are matters which generally are agreed upon with no great difficulty between the sales and credit departments. The credit manager should have conveniently available a printed list signed by all those im- mediately concerned so that there can be no dispute at any I20 THE RETAIL CHARGE ACCOUNT time as to just what accommodation can be granted customers in the matter of terms. At one time many merchants sold pianos on the basis of $5 down and the balance in five, six, seven, or more years, but a great many abuses crept into these transactions. Their salesmen in their anxiety to "put across" deals were known to advance customers the amount of the initial payment out of their commissions. They realized that their establishment would honor practically every contract offered for approval, but cared little as to how long it would take the customer to pay the balance. The more progressive among the merchants, however, found that by shortening their terms and insisting on a very substantial down payment, they could sell to a more desirable class of customers, turn over their money more rapidly, and experience less difficulty with collections. The psychology of this is not at all obscure, for after a customer has been paying for three years or longer on a purchase, he soon tires of his obligation and becomes careless. Too often he gets the feel- ing of "paying for a dead horse" — all of which is not con- ducive to good feeling between the buyer and the seller. Another important fact too frequently overlooked is that a large down payment is an insurance against loss and is a sterHng indication of the desirability of the credit risk. How much time should a customer have when buying on the instalment plan ? This is a broad question, but roughly speak- ing, a satisfactory piano business can be conducted on a two or three years' basis; talking machines on twelve to fifteen months' ; electrical household appliances of the more expensive sort on ten to twelve months' ; vacuum cleaners, kitchen cabi- nets, and such merchandise, six months' ; furs, three months' ; clothing and jewelry six to twelve months'; and furniture about twelve months'. The terms in each case depend on local conditions and the amount of profit figured in the sales. INSTALMENT ACCOUNTS 12 1 Minimum Amount for Initial Payment The size of the initial payment is also subject to a great deal of variation. Ten per cent down is none too much to ask and more should be obtained if possible. This is desirable for several reasons. For one thing, it gives the customer a greater equity in his property and makes him more anxious to meet his payments promptly and discharge the entire obligation as speedily as possible. Secondly, it decreases the merchant's outstandings by the amount of additional cash paid in, and, again, it attracts in time a more desirable class of trade, not necessarily a more monied class but rather a type whose busi- ness morality is more highly developed. There have been firms which at first conducted a piano and talking machine department on the long-term basis with but scant success, and which later, after they had been induced to cut the time in two, found to their agreeable surprise that they had almost more business than they could conveniently handle. Recording Contracts After the terms have been agreed on, the conditional sales contract should be drawn up in triplicate, the original and duplicate to be signed by the customer. When the sale has been approved the original may be sent to the contract depart- ment and the duplicate to the customer, while the triplicate is kept in the files. Chattel mortgages or chattel mortgages with a note attached, may be signed in duplicate by the customer so as to have two sets of original signatures. Should the instalment contracts be filed or recorded with the clerk of the county in which the merchandise is to be located ? This is a question open to a great deal of discussion. A great many credit men file all contracts whether their amount is large or small, while others file only those over $ioo. The filing or recording of an instalment contract is for the express purpose of protecting the merchant against 122 THE RETAIL CHARGE ACCOUNT "third party" proceedings. Notice is thereby placed on record that merchandise sold to a certain individual is still the vendor's property or that there is an obligation still concurrent with the purchase, which does not become the absolute property of the purchaser until entirely paid for. So far as the transaction between the vendor and vendee is concerned, no filing or recording is necessary. Nor does such action enhance the security afforded by the contract. However, should the vendee dispose of the property to a third party it may be recovered by the vendor without any difficulty on an action brought against the vendee for conversion. Should the tranfer be made to a third party in good faith so far as the new purchaser is concerned, and the contract not be filed, the property cannot be readily recovered and an action would lie against the original vendee only. The question naturally arises as to the practicability of the credit department incurring this tremendous expense in filing all of its contracts. Some managers have suggested creating a yearly reserve for the amount spent for filing contracts against losses incurred by such fraudulent transfers. It would seem, however, a better policy to file all contracts in excess of a reasonably large amount, for two reasons : first, to place such a conditional sale on record as a matter of precaution, and second, to create the atmosphere of good business practice and care on the part of the establishment engaged in such sales. It does not take long for the general trade to learn whether or not a firm is lax or businesslike in its methods. If it is lax, sooner or later advantage will be taken of its methods, and the losses may prove more expensive than the cost of filing the contracts. Insurance The average instalment contract provides that the customer furnish insurance payable to the vendor "as interest may ap- INSTALMENT ACCOUNTS 123 pear" and also stipulates that the insurance policy be turned over to the vendor as soon as issued by the insurance company. It is only fair to expect the customer to protect the mer- chandise against loss by fire. Many firms arrange with the customer to have the necessary insurance policy obtained from their broker, notifying the customer as soon as it arrives and sending him a special bill for the amount involved, considering it a cash transaction. The policy is drawn for the length of time the contract will run and is held by the vendor until the amount is paid in full, thus insuring against forgetfulness on the part of the customer to pay the premium when due in the case of yearly renewals. In the instance of loss by fire, settle- ment for unpaid balances is made without any difficulty directly with the vendor. Inasmuch as merchandise may be sold on the instalment plan in more than one state, and as the requirements in such transactions may vary to a considerable degree between the states, it is advisable for the legal department to draw up special contracts for the different states involved so that there may be no danger of the agreement being invalidated through in- advertent failure to observe the requirements. Collection System In the instalment business the collection department is probably as important as the credit department, since the trans- action is not a complete success unless all payments are made with a reasonable degree of promptness and are finally paid for in full. Such efficient collection requires a system which will permit of constantly and carefully following up accounts, either on a weekly or monthly basis. A great many merchants prefer not to have payments made on a weekly basis because of the additional expense, feeling that if their customers cannot be trusted for at least a month at a time they cannot be trusted for a shorter period. 124 THE RETAIL CHARGE ACCOUNT , In order that the individual account may receive the proper attention, one credit manager has adopted the rather remarka- ble plan of coding his customers according to their credit stand- ing as they appear to him at the time the contracts are approved. A master card is drawn up, together w^ith the necessary ledger sheet, index card, notice for the mailing list, and notice to the credit department when the sale is completed. This card goes to the "probation officer" of the department. In other words, all new accounts are on "probation" for six months before they are turned over to the regular collection correspondent. An account is watched very closely during this initial period and the customer is trained to make payments promptly on the due date. The extra time and attention given to accounts during this period is well spent for two reasons. First, it enables the credit manager to pick out the "trouble-makers" at the very start, and second, the customer learns to know that payments must be made promptly. The ledgers are arranged according to the due dates of the contract in order to distribute the sales over the entire month. In other words, where a contract is made on the tenth of this month the first payment falls due on the tenth of next month ; and if the contract is made on the fifteenth, the first instal- ment falls due on the fifteenth of next month, and so on. In indexing the accounts as they are opened the due dates are entered immediately following the ledger folio. This enables the collection correspondent to follow up the work more closely and with less confusion than if the business were divided into two periods, the first and fifteenth of the month. A statement should be sent to the customer five days before the due date, calling attention to the fact that a payment or payments will be due at a given time. Five days after the due date, if no payment is made, the correspondent can begin his series of letters. This is where the code plan demonstrates its value. INSTALMENT ACCOUNTS 125 Grouping of Customers Based on Nature of Their Business Customers naturally fall into certain classes with regard to responsibility, character, and bill-paying habit, and there is no doubt but that the collection correspondent could work more intelligently if he knew to which class each customer belonged. The most thorough method of obtaining this result would be to place before him the credit application con- taining the agency report, references, and whatever other data may have been collected; but going over these papers means loss of valuable time, and lost time is waste, and waste spells inefficiency. The credit key or code is really the application and credit information boiled down. It serves as a guide in collecting the account and extending additional credit. For convenience the letters A, B, C, and D are employed to distinguish the accounts as to their relative standing as collection risks, classified as follows : The well-to-do class, including: A — I. Those who are possessed of means other than those derived from their business connections. 2. Proprietors, partners, and officers of well-es- tablished reputable business firms or corpora- tions. 3. Those retired from active business but of unques- tionable character and integrity. B — Salaried employees. Those whose positions and places of business are paying well under normal conditions and whose sources of income are their salaries or commissions. This class will include salesmen, department managers, clerks, federal, state, and city employees. C — Day workers. Those who by reason of trade change their places of employment more or less frequently and whose incomes fluctuate with 126 THE RETAIL CHARGE ACCOUNT seasons, trade booms or depressions, and strikes. This class includes carpenters, painters, brick- layers, ship-workers, cloak and suit operators and other artisans. D — I. "The prdfession," a general term among credit men embracing the following classes : Actors, actresses, cabaret performers, singers, artists, writers, journalists, interior decorators, and purchasing agents, unless included in class A, B, or C. 2. Negroes, East Indians, or foreigners. 3. Men and women of questionable character, or whose source of income is shrouded in mystery, such as gamblers. Classification According to References The information obtained from the separation into classes according to the business followed as indicated by the applica- tion will be supplemented by the nature of the references sub- mitted, and these may be classified as follows : A — I. Business references: From established houses which have had actual business dealings with the purchaser and which report bills paid promptly. 2. From banks which have extended accommodation which has been met promptly. B — Character references from banks or well-established business houses or from officers of these institu- tions. C — Personal references from fairly reliable sources, which in the judgment of the credit man are sincere and in which the information given is apparently based on long personal acquaintance with the purchaser. INSTALMENT ACCOUNTS 1 27 D — References which are more or less doubtful but not sufficiently so to warrant cancellation of the sale. In any event personal references should always be taken so that in the event of disappearance of the customer there will be some additional source of information to trace his subsequent movements. The risks therefore can be classified as, "A," Excellent; "B," Good; "C," Fair; "D," Doubtful. Key System Assuming the operation of this key system, let us suppose that John Brown's account becomes one month in arrears. The collection follow-up card is made up and a form letter sent notifying Mr. Brown that his account is in arrears and request- ing payment. If at the end of the month the instalment is not paid, No. 2 letter is mailed, and so on down the list. If William Jones fails to make a payment the same pro- cedure is followed, the same form letters issued in sequence, and both cases treated identically the same. To the cor- respondent there is no difference — both are in arrears and both are dunned for the money due and fall equally under condemnation. Should both these accounts be treated alike? Have these two customers the same attitude towards the payments due on their accounts ? We do not believe so. John Brown is a wealthy man, formerly head of Brown and Company, wholesale dry goods establishment, favorably known to the trade throughout the country. He has retired and is living at his country estate, a show place of the part of the state where it is situated. He enjoys the convenience of an account in practically all large establishments and has always paid his bills promptly. Were we possessed of the power of 128 THE RETAIL CHARGE ACCOUNT divination we would see that the reason for Mr. Brown's dehnquency is most legitimate. He has been out of the city on some business deal and has quite overlooked such a matter as a monthly instalment due on his account. Immediately upon his return to the city, within the next week or so, undoubtedly his check for whatever is due will be promptly mailed. The case of William Jones, however, is entirely different. He is employed as a riveter in a shipyard and earns good wages when he works, but the nature of his employment is such that it prevents him from working in one place for any great length of time. He has been with his present employer six months and at his home address for about the same length of time. His income is somewhat uncertain due to slack seasons, busi- ness depressions, or trade conflicts, and so far as can be learned he has no source of income other than his wages. The credit department's investigation shows that he has changed both residence and business address quite frequently. As the status of these two accounts is unknown to the collection department, the correspondent is enabled by means of the "key" to distinguish at once between the cases of Mr. Brown and Mr. Jones. The one represents an excellent credit risk, having simply overlooked a payment; and the other rep- resents a rather doubtful credit risk, having deferred his payment probably because he does not have money to meet the recurring obligation, or quite possibly, because he has changed his place of employment or residence. The correspondent can permit accounts typified by John Brown's to go on as they are without much thought on his part, while those of the William Jones class he follows up sharply. The method of correspondence to be employed in the col- lection of instalment accounts offers a fruitful field for discus- sion. Owing to the fact that there will be a great number of accounts to be Written on and that in the majority of cases the same sort of delay will be experienced with them, it is quite INSTALMENT ACCOUNTS 129 evident that form letters will cover the situation very satis- factorily over a period of the first three or four months. Writing Letters Some firms use multigraphed form letters, leaving the operator to fill in the name, address, and necessary information as to the number of the account, month, and amount owing. Other firms have their typists write out each form letter, giving it the appearance of a specially dictated letter, feeling that the expense and necessary time required to type the letter is justified by the results obtained. The success of the first method will depend very largely on how carefully the process work is done and how closely the filling in will match the printed portion of the letter. To obviate this difficulty there are certain automatic typewriters in use which reel off by the yard personally written and signed letters. They in fact type the letters completely even to the signature of the correspond- ent. The only thing lacking is the rubber stamp in the lower left-hand corner, "Dictated but not read." Form letters, no matter how well constructed, require changing at frequent intervals so that customers will not come to recognize the same literature reaching them month after month. As all accounts should be turned at least twice, if not three times a month, form letters will answer the purpose if properly constructed. After the account reaches a certain state of delinquency, or the customer has made a great many promises and has not lived up to them, it is obvious that the form letter cannot cover the situation. A specially dictated letter then becomes necessary. This is particularly so where the "probation officer" system is used. Instead of relying blindly on the effect produced by form letters during the early stage of a new account, the correspondent under this system treats each individual case of delinquency on its own merits, trying to educate the delinquent into the regular habit of paying. I30 THE RETAIL CHARGE ACCOUNT More often than not his efforts meet with considerable success, and, subject to local conditions, the scheme is well worth trying. Place of Payment Many firms selling furniture, clothing, and household effects insist that it is necessary to employ outside collectors to prevent the accounts from becoming delinquent. We think that this is a fallacy. There is only one place in which the customer should pay, and that is af the store, either in person or by mail. To be sure, a great many customers have no check- ing accounts with banks, and find it somewhat inconvenient to send a money-order each month, but this has not presented any difficulty in enough cases to make it worth while changing the system of collection. By insisting that all payments be made at the store, the credit manager has an opportunity of saying to his new customer in a rather forceful manner : "Why, Mrs. Brown, we don't have collectors. We feel that the class of customers who come to this establishment are such that they would not care to have their friends see one of our collectors coming to their homes every month after a payment. We feel they are to be trusted sufficiently to send us the regular instalment when it falls due, or to come to our establishment to look around and find out if some other merchandise would interest them. Charge people do not like to have a collector call at the house as it seems to be an indication — well, you know, Mrs. Brown, it is not very nice." It does not take Mrs. Brown long to get the point, and where there are several thousand Mrs. Browns the resulting economy is frequently similar to that experienced by one house which had seven outside men religiously going each week or each month after payments just due, not to speak of those past due. Today they have one man and the collection percentage has risen. INSTALMENT ACCOUNTS 131 Enforcing Payment Suppose a customer ignores requests for payment and the account gets farther behind month after month. This is naturally a case for a collector, for the store not only wants the money but desires to learn just how much trouble it may expect to have in collecting the rest of the account. The type of men fitted for this particular job are credit-investigators and not mere collectors. When the account gets to this stage the investigator, who should be a man of parts, invested with authority to act as a collection manager would if he were on the spot himself, first collects the amount of the arrears in full, second, makes satisfactory arrangements for liquidation of the balance due, third, retakes the instrument or merchandise, fourth, recom- mends suit for repossession. His judgment should be depended upon to such a degree that the collection department can feel absolutely certain as to what course to pursue. The work of these investigators can be supervised by the depart- ment attorney or some other person in close touch with the collection manager. In addition to their regular duties, they can make investigations on new sales and submit reports for the guidance of the credit man. If a delinquent debtor cannot or will not pay the amount due on his instalment account and the ofifice is not yet prepared to sue him, a carefully worded letter of regret should be sent to the customer notifying him that a truck will call for the merchandise on a particular date, say three or four days hence. A memorandum at the same time is sent to the delivery depart- ment instructing it to call for the article in question on a par- ticular date, with instructions, however, to call the credit office just before going on the trip to see if the customer has made either a payment or some satisfactory arrangement. It is surprising how effective this plan is. If, however, the customer's default continues, the truck 132 THE RETAIL CHARGE ACCOUNT goes out as promised, and if he declines to give up the mer- chandise at the demand of the driver, the fact is reported to the credit office and the account is placed with the legal depart- ment for attention. Different methods, of course, are used in different states in the repossess proceedings. When re- possessed the merchandise is once more in the vendor's custody or is deposited with a storage warehouse pending disposition of the case by the court. Sometimes the various "property laws" provide for different courses of action on the part of creditor and debtor, and the creditor must comply with these particulars very closely or he may find himself subjected to a bill of expense far greater than any possible loss he might have suffered on the account. Concerning legal matters in general, as explained in the chapter on collections, there are certain advantages in having a house, instead of an outside, attorney. Accounts may be placed with him for collection and all the necessary files trans- ferred to his jurisdiction without removing them from the building or even from the credit or collection offices, and if any immediate adjustment has to be made, no time need be lost in consulting attorney and client but a decision can be given on the spot. When repossessed, merchandise should be put in as salable condition as possible and disposed of as second-hand mer- chandise. No right-thinking concern would tolerate the selling of repossessed merchandise as new. Hence the down payment should be large enough to cover the depreciation. Interest Charge The average instalment account carries an additional charge for interest, payable at a fixed rate for whatever length of time the agreement is to run. It is fair to charge interest on the accounts for two reasons, which are as follows : First, practically all houses operate on the "one-price" INSTALMENT ACCOUNTS 133 plan, having a single price for a particular line of merchandise regardless of the terms of payment. They thereby instil a feeling of confidence in their wares and their method of doing business. But as it should cost a customer less if he pays for the merchandise in six months than if he pays for it in one or two years, they make the adjustment through the interest charge. Second, frequently a customer will say that a similar article can be bought in a neighboring store for the same length of time without any additional charge for interest and at practi- cally the same selling price. The fallacy of this statement lies in the fact that no merchant can do business on a long-term basis without collecting interest and if he does iiot charge interest he must include it in the selling price. The amount so included is generously figured so as to cover the average loss from delinquent accounts. This can be proved by offering to pay cash for the article in question when it will be found that a liberal discount will be given. Methods of Charging Interest How is the interest to be charged on collections? There are four methods of doing this, which are as follows : 1. Collection of the total interest after the principal has been paid. 2. Collection of the interest based on the monthly pay- ment, which results in the smallest amount of the interest being received the first month and the larg- est amount the last month. 3. Collection of interest based on unpaid balances, the outcome of which is the receipt of the largest amount of interest the first month and the smallest amount the last month. 4. Monthly collection of interest averaged over the full 134 THE RETAIL CHARGE ACCOUNT contract period, figured at the time the agreement is entered into. This additional amount becomes part of the selling price. The first method is the most unsatisfactory, because the customer is very apt to lose sight of interest if its payment is put off to the end. Frequently he claims that nothing what- ever vi^as said about interest at the time of the sale. This may or may not be true, but two or three years after the original agreement was made is a poor time to discuss the interest charge, notwithstanding the fact that the clause covering it may happen to be printed in red in a prominent place on the contract. Rather than lose a good customer or create an unpleasant atmosphere the house frequently charges ofi the interest item. Perfectly good money is thus thrown away. The second and third methods are similar, but are com- plicated and misleading to the customer. The operation is very expensive from the bookkeeping department's point of view and necessitates additional figuring on every account, additional billing, and gives the correspondent much trouble in attempting to take care of two different sorts of figures. The fourth method is the most satisfactory, as the customer knows at once in a most definite way that there is an interest charge. The salesman cannot ignore the charge but must bring it to the customer's attention. A definite figure is agreed upon which becomes part of the contract, and it is paid by the month as though the selling price were simply increased by the amount of the interest. The monthly instalment is therefore paid without any additional item for interest. Should pay- ments not be made regularly the house will not suffer any serious loss on the estimated interest charge for the periods the customer may be delinquent. If, however, a substantial balance is due and unpaid for a period of months there is no INSTALMENT ACCOUNTS 135 reason why additional interest should not be charged on this figure as it is then strictly an unpaid debt long overdue. From the accounting point of view it is easy to take care of interest items, as they can be immediately journaled from accounts receivable to Interest account and no further attention need be paid to this feature of the transaction, except perhaps in a case of repossession where there is a large unpaid balance on which the interest must be prorated. Gauging Efficiency of Collection Department The efficiency of the collection department will be measured by the percentage of cash received each month. There is only one accurate and fair method to determine this figure and that is to establish on the first of each month the total amount of the payments due that particular month plus any instalments which may have been unpaid from preceding months. The total outstandings of the instalment business cannot, of course, be considered as the basis on which to compute percentage of collections. Naturally, to figure all the amounts due as de- scribed entails much time and is expensive. On that account it cannot be done oftener than every three months. It has been found that if collections are at least 90 per cent of the amounts due that the department is operating very successfully. If the percentage of collections is based on the total out- standings, the various classes of accounts sold will have to be taken into consideration and prorated accordingly. In other words, sales made on the basis of twelve months will be ex- pected to return a greater amount per month than sales made on the basis of two years, as in the one case one-twelfth of the amount due on each contract times the number of such con- tracts is the amount to be expected and will naturally be greater the shorter the term of the agreement. On piano con- tracts to run on the average below thirty months, 7^4 per cent collected on the balance outstanding on the first day of the 136 THE RETAIL CHARGE ACCOUNT previous month is a good figure. On phonograph accounts averaging below fifteen months, 15 per cent is satisfactory. These are purely arbitrary figures and cannot be considered as standard because, as already explained, they are not estimated on a fair basis, but they are nevertheless good illustrations of what may be achieved. The percentage of loss in the instalment line in a high- grade establishment where the accounts are watched should be no greater than on the charge business unless the expense of repossessed merchandise is figured in as part of the loss. This figure should be no more than i per cent of the total sales. There are some lines of business, however, in which the selling risk is high and the prices accordingly are increased to such an extent that even a 6 per cent annual loss is considered very low, owing to the fact that profits are considerably beyond the average. Reports to Credit Manager At all times the credit manager should have before him monthly reports of sales, collections, amounts in arrears, re- possessions, average down payments, and percentage, the average running time of contracts, losses, and any other statis- tics that may be of value to him. If properly drawn up and graphed the trend of his business operations will clearly be seen. It is frequently not particularly essential to consider the increase or decrease of sales and collections in the exact amount of dollars and cents but merely the' general movement up or down. The graph or visualized method, which in fact is employed by many statisticians, will mean more to the credit manager than any amount of figures drawn up merely as figures. Comparative percentages are sometimes most unfair. What was collected this month and what was collected this month last year may not be the result of similar conditions. For the same reason sales reported for the corresponding INSTALMENT ACCOUNTS 137 periods often suffer by comparison. The trend alone is sufficient, and is shown by the graph. Like everything else in the credit business the spirit of the game is what counts and not the game itself. The credit manager must not take too much to heart the fact that he has a tremendous amount of detail to dispose of. He is there to see that the work is done and not necessarily to do it himself. Too frequently he does not have an opportunity to detach him- self from his duties and observe his responsibility as a whole. He must do this, however, if he expects to make a success of his vocation. CHAPTER X CUSTOMERS' BUSINESS AND PERSONAL TROUBLES Clipping Bureau Notice appearing in a newspaper or some other publication of a customer's being involved in some form of trouble or another is a danger signal and no further credit should ordinarily be extended to him until a thorough investigation has been made to assure the credit manager that he is still of sound financial responsibility. Every properly appointed credit office should have a clip- ping clerk to record information of whatsoever nature pertain- ing to any of its charge accounts. This information will naturally resolve itself into three general classes, as follows : 1. Business troubles, consisting of suits, judgments, foreclosures, and bankruptcies. 2. Separations, divorces, and deaths. 3. Bad checks. I. (a) Suits One of the most important indications of trouble are law- suits. In most cases the institution of a lawsuit against a debtor signifies that he has not made payment in accordance with the terms originally agreed on. Information about lawsuits may readily be secured through the medium of certain publications issued for that very purpose, or from a good reporting service. It is well to bear in mind, however, that in some cases suits may be occasioned by disputed accounts and not reflect upon the debtor's credit standing in any way. 138 CUSTOMERS' TROUBLES 1 39 Whenever the credit department receives information that a suit has been instituted against one of its customers, the full particulars of the case should be at once ascertained : why the action was brought, whether for goods sold and delivered, or for labor and services rendered, or because of foreclosure proceedings, breach of contract, or any other cause. I. (b) Judgments Information of an existing judgment against a customer is very detrimental to his credit standing. It becomes very important to try to collect his account as early as possible, as the plaintiff who secured the judgment will undoubtedly turn it over to the sheriff for execution and levy. When a customer against whom there is a judgment has no attachable property, he is served with an order in supple- mentary proceedings. Experience seems to show, however, that these proceedings seldom prove of great value. The dis- honest debtor has prepared in advance for just this move on the part of his creditor, and his financial affairs are so con- fused that the results hardly warrant the expenditure involved in the process. The low moral risk must also be taken into consideration in dealing with a person who does not settle his account until his creditor has been obliged to go to the trouble and expense of instituting a suit, obtaining judgment, issuing execution, and instituting supplementary proceedings. In Chapter III, "Opening the Account," considerable stress was laid on the necessity of learning the applicant's bank and business connections, together with the description of any real property which he may have, as some of the determining data for extending credit. The same information is also very important in effecting the collection of the account. When the execution of a judgment is returned unsatisfied, the credit manager can apply, without notice to the debtor, to I40 THE RETAIL CHARGE ACCOUNT the bank where he keeps his account and have whatever funds he has on deposit tied up until the court makes final disposition of them. Advantages of Recording Judgments All judgments should be recorded, as the debtor may at some future time come into possession of property which will make possible the collection of the amount due with interest. Many houses are opposed to incurring the additional expense involved in this recording, but numerous benefits will be found to accrue from such procedure. By this means the life of the claim is automatically extended for a period of twenty years. Secondly, the judgment becomes a lien against any real prop- erty which the debtor may own or become possessed of later in the county where the judgment is filed. Moreover, a creditor with a judgment on which a sheriff's execution has been issued is permitted to institute what are known as "third- party proceedings," whereby he can tie up bank accounts, life insurance policies, debts due to the debtor, or property held for account of the debtor by other persons. Again, a judgment creditor is also given certain privileges in the matter of taking steps to set aside fraudulent transfers of property, which remedies are usually denied to the ordinary creditor. Then, too, in case the debtor dies during the life of the judgment, the judgment becomes a preferred claim on his estate, should he leave any. The greatest advantage of all derived from a judgment is that a judgment duly docketed is a permanent danger signal to warn all against extending credit to a person who has already been adjudicated in one or more instances to be a poor credit risk. Should the debtor ever again establish himself financially and desire to rehabilitate himself, he will seek to settle up his outstanding judgments and remove the black marks on his record. CUSTOMERS' TROUBLES 141 1. (c) Foreclosures In case of default in payment or breach of any of the conditions contained in a mortgage or conditional bill of sale, the mortgagee or holder of such bill of sale may institute fore- closure proceedings. These are regulated by the statutes of the state in which such land or property is situated. The proceeding eventually results in a decree authorizing a sale of the property in question, the proceeds of which are to be paid to the holder, and the surplus, if any, to the mortgagor or to any other persons who have liens or claims against the mortgagor and are parties to the proceeding. Should there be a deficit, judgment may be entered against the defendant for the deficiency and any other property of his may be reached in this way and sold to satisfy the deficiency. I. (d) Bankruptcy The present Bankruptcy Act was passed by Congress on July I, 1898. It has for its main object the equal partition of the debtor's property amongst his creditors, and after such division the discharge of the debtor, if he has failed honestly in business, from all his obligations so that he may begin busi- ness afresh without the handicap of past debts. Forms of Bankruptcy There are two forms of bankruptcy — ^voluntary and in- voluntary. Any person, partnership, or corporation may apply to be adjudged a bankrupt. This constitutes voluntary bank- ruptcy. In involuntary bankruptcy three or more creditors to whom a total of not less than $500 is due may petition the court to have the debtor declared a bankrupt under the follow- ing conditions : I. The debtor has admitted in writing his insolvency and his consent to be adjudged a bankrupt. 142 THE RETAIL CHARGE ACCOUNT 2. He has removed or concealed, or permitted to be re- moved or concealed, some part of his property with intent to hinder, delay, or defraud his creditors. 3. He has made an assignment for the benefit of his creditors. 4. He has given some of his creditors a preference, either by permitting judgments to be entered or attach- ments issued against him, or by transferring his property to them, while actually insolvent or con- templating insolvency. 5. He has made a fraudulent conveyance or transfer of property with the intent of hindering, delaying, or defrauding his creditors. Abuses of the Bankruptcy Law When the bankruptcy law was first passed it was considered most commendable, since it presumably assured protection to the unfortunate or incompetent merchant and to his more unfortunate creditor. As time passed, however, the sharp and dishonest debtor learned how he could virtually make the law an open sesame to his creditor's ban^c account. It frequently occurs that when a dishonest merchant finds his business nearing disaster he calls an executive session of his immediate family, and after informing them that the busi- ness is doomed says : "Let us stock up beforehand." All then proceed to purchase such clothing, jewelry, and personal eflfects as they expect to need for the next year or longer. Then comes the smash and the deluded credit manager and his unfortunate house become the "victims" of the conspiracy. In such cases it is generally found that the account has been considered satisfactory and payments have been made promptly. The sales and credit departments have patted them- selves on the back for having increased their volume of business with the debtor. They have convinced him, they think, that CUSTOMERS' TROUBLES 1 43 their shop is the most desirable and advantageous in their Hne. But when the creditors' meeting is called the credit manager discovers that his house was not the favored one, but only one of many victims. He also learns that the sales made to the bankrupt have consisted of personal effects, which cannot be reached legally by the creditors, nor would they be worth much even if they could be reached. Within a year, sometimes within a month, the bankrupt applies to the court for a discharge, sadly advising in his petition that he has complied with all the rules and require- ments of the bankruptcy law. The discharge is granted in 90 per cent of the cases without opposition, and the dishonest debtor scans the horizon for new fields to conquer. Objections to Present Bankruptcy Law The fault of the present bankruptcy law is that it may be availed of by persons who are not really entitled to the relief it is designed to give. The original purpose of all bankruptcy and insolvency acts was to afford relief to the unfortunate merchant who met with reverses that he could not reasonably have anticipated. Under such circumstances, by dealing fairly with all of his creditors and turning over to them all of his remaining property, he was granted his discharge and was permitted to engage in business again. A merchant may be prosperous today and through circumstances beyond his con- trol become insolvent tomorrow. It is but right that he should not be forever harassed because he has been at one time unfortunate. But what of the man who never has been engaged in business on his own account, who has met with no reverses, whose income has in no sense depreciated, but who has simply gone into the retail stores and has lived a life of luxury without really intending at any time to pay the obligations so incurred by him, and when pressed by his creditors simply tells them 144 THE RETAIL CHARGE ACCOUNT that if pressed unduly he will have recourse to the bankruptcy law and in due course get a discharge from bankruptcy ? There is no sound reason why a debtor of this type, very often a woman, should be granted the very valuable privilege of being discharged from her debts when she has dealt so unfairly with her creditors. There are a number of cases where the same person has gone into bankruptcy several times and has obtained a discharge in each instance. The frequency with which the bankruptcy law is resorted to is attributed, first, to that defect in the law which permits the law to be availed of by a dishonest debtor, and, secondly, to the indifference of the creditors themselves, who, as soon as they have received notice that a certain debtor has gone into bankruptcy, immediately mark the debt off their books and take no interest whatsoever in the bankruptcy proceedings. The result therefore is that the debtor, either through experience or because of legal advice given him, knows that the process of going through bankruptcy is a comparatively painless and inexpensive operation. Neglect of Creditors to Press Claims The Bankruptcy Act itself, with all its faults, is still a very good instrument and can be used to correct many of the abuses that, solely because of the neglect of creditors, crop out in the administration of the act. The bankrupt knows that if he files a petition in which no assets are scheduled, the average creditor will not be sufficiently interested to look after his own interests in the bankruptcy court and see whether or not the bankrupt has made a full and fair accounting of all his assets and whether or not he has turned over all his assets to the bankruptcy court. In a way, the individual creditor whose claim may amount to only a few hundred dollars or less cannot be greatly blamed for not retaining counsel to examine the debtor and CUSTOMERS' TROUBLES 145 all the other persons who may know something of the debtor's affairs in order to fight the application for a discharge. As a matter of business policy it perhaps does not pay the individual creditor to assume the burden of litigation, but this is the place where the Retail Credit Men's Association should be asked to step in and take immediate charge of all bankruptcy cases affecting any of its members. There would then be assurances that the bankrupt would find the process of going through bankruptcy not so easy as he anticipated, and even if sufficient assets to declare a substantial dividend were not located, the action would have a deterrent effect on this class of debtors, so that in the course of time the bankruptcy courts would be resorted to only by people with honest intentions. The present bankruptcy law should be so amended as not to afford an opportunity to those who, not engaged in business, have suffered no depreciation of income since the liabilities were incurred. A further amendment should be made placing upon the applicant for a discharge from bankruptcy the burden of showing that he is actually entitled to such discharge. A discharge should be absolutely barred to any debtor whose estate would not pay a dividend of at least 25 per cent, except possibly upon the unanimous consent of all his creditors. At the present time the law is that where a creditor opposes the bankrupt's application for a discharge the burden is on the objecting creditor to state in full detail the exact reason for the opposition, which must strictly conform to the particular reasons assigned for opposing the discharge under the Bank- ruptcy Act, and the creditor must prove his charges by a fair preponderance of the evidence. This is a burden that is very often difficult for the creditor to assume and in any event, whether successful or not, is attended with a great deal of expense. To overcome this dif- ficulty the local association of merchants should establish a bureau of adjustment, similar to a prosecution bureau, which 146 THE RETAIL CHARGE ACCOUNT would handle all such matters in behalf of its members. In time the unfair practices now attending bankruptcy proceedings would be greatly reduced, if not entirely eliminated. 2. (a) Separations and Divorces No phase of the credit man's work requires greater tact and skill than his treatment of accounts affected by marital troubles. On the one hand he must thoroughly post himself as to the soundness of his position and protect the interests of his house, and on the other, he must retain the good-will of the customer and avoid any possibility of giving offense. Generally, where a separation is granted, or arranged for by mutual consent of the parties involved, the husband agrees to pay a stipulated amount for the maintenance of his wife and children. He will then usually inform the merchants where he has charge accounts, either in writing or by advertising in the papers, that he will be no longer responsible for any pur- chases charged to his accounts unless his written consent is first obtained. A man whose wife or children are extravagant may give similar notice, and the credit manager must use a great deal of diplomacy in learning whether any provision has been made to supply the necessaries of life for the wife and children not yet of age. A carefully worded letter to the husband will invariably secure the desired information. Frequently he will reply with full particulars of the case, or he may refer the inquirer to his attorney for all details. Alimony When granted to the wife, a divorce generally provides for certain alimony, and it is absolutely necessary to learn the amount allowed, as well as the full particulars of her own financial resources. The number of persons she must provide CUSTOMERS' TROUBLES 147 for out of her income must also be taken into consideration and a most careful investigation must be made before deciding upon the question of continuing the charge account. Where a divorce is granted the husband no ahmony is forthcoming, and the account must be considered closed unless the wife can furnish satisfactory evidence of her own financial responsibility. Liability of Husbands In Chapter III, "Opening the Account," reference was made to decisions rendered by the courts on the respective liability of husband and wife in charging merchandise on open account, and it will not be amiss to refer again to that subject here. Considerable uncertainty exists in the minds of many as to the exact liability resting upon either the husband or the wife for purchases made in retail stores. The general impres- sion seems to prevail that the husband is in all cases responsible for merchandise purchased by the wife, unless he has given notice stopping the further extension of credit to her. This, however, is not the law. A husband is not in every case liable for purchases made by the wife, and besides, the mere giving of a notice will not relieve the husband from liability, if the liability otherwise exists. The law with respect to this matter is that the husband is ordinarily liable for the reasonable necessaries obtained by the wife for the use of the family, unless the husband has either provided the family with sufficient articles of the nature and kind purchased, for their wants, or has supplied the wife with sufficient money to purchase and pay for what is needed according to her social standing and the husband's income. Of course, while the general rules of law can be briefly stated, their application to any particular case is very difficult and fraught with much danger. It is practically impossible for the credit man to determine whether the purchase about 148 THE RETAIL CHARGE ACCOUNT to be made is reasonably necessary for the family. He usually has prepared no inventory of the wife's wardrobe and can hardly be expected to ask the prospective purchaser just how many gowns or dresses she has. It is also difficult for the credit man to ask the wife just how much spending money her husband allows her and what the exact amount of her hus- band's income is. Purchase of Reasonable Necessaries It very frequently happens that when the husband is sued for the price of a purchase he makes his defense on the ground that he has furnished his wife with sufficient money with which to buy herself clothes, or that she already has sufficient apparel for her reasonable wants. The innocent creditor, who has no means of ascertaining these facts before the trial, is battered between the conflicting interests of husband and wife and may not be able to recover in an action against the husband. The creditor may then attempt to recover in an action against the wife, inasmuch as she has apparently exceeded her reasonable authority to charge purchases to the husband. But on the same set of facts she may be able to persuade the jury that she was not unreasonable in her purchases and that these should have been charged to the husband. The verdict against the husband is not a precedent in the action against the wife, so that the creditor may be unable to recover against either. This precise situation has happened and will happen again, and affords material for unpleasant contemplation. The only way in which this condition of affairs can be remedied is to allow the husband and the wife to fight out their legal battles themselves and decide who should ultimately be required to pay, and to grant the creditor in the meantime a remedy to recover from them jointly and severally for any purchases of reasonable necessaries — not actual but reasonable necessaries. CUSTOMERS' TROUBLES I49 Different Statutes in Various States Statutes of this character are in effect in New Jersey and Illinois. They are reasonable and sensible, and action should be taken to have legislation of this character adopted by all the states. The law in some states seems to provide that alimony, no matter how liberal in amount, cannot be reached in garnishee proceedings under a judgment regularly obtained against the wife, upon the ground, as held by the courts, thit the alimony is intended to keep the wife from becoming a public charge, and that if the judgment creditors were permit- ted to reach that fund in any substantial amount the wife would be deprived of the allowance granted her. As a matter of fact it frequently happens that credit is ex- tended to divorcees largely on the basis of the alimony awarded to them. In such cases the creditor should certainly be permit- ted to realize upon a portion at least of the alimony in satis- faction of the judgment he has obtained. 2. (b) Deaths When a debtor dies it becomes necessary to file a proof of claim against his or her estate. In the case of a husband's death full information regarding his will and size of the estate should be obtained before the account is continued in the widow's name. In the event of the wife's death her husband still remains responsible for debts she incurred for necessities, and no proof of the account is required unless she left an estate and the account was originally chargeable to the wife. 3. Bad Checks What is meant by "bad" checks or "N.G." checks? Of course not all checks or notes returned unpaid are to be placed in the category of "bad" checks. Some of them may have been given in perfectly good faith. They may have been issued against other checks deposited to the customer's account, the 150 THE RETAIL CHARGE ACCOUNT collection of which has not been made finally through the bank. They may have been given under the impression that the bank balance was larger than it really was, although it is hard to understand how any person with sufficient intelligence to enjoy the conveniences of a bank account should not be able to look after the slight amount of bookkeeping requisite and keep the checkbook in proper balance at all times. Bank Iddger clerks, however, are often guilty of embarrassing errors in depositors' accounts. Different Classes of Bad Checks Frequently checks are issued with the knowledge that suf- ficient funds are not in the bank, the customer trusting that the account will be replenished by the time the checks reach the bank. Sometimes, the customer does not even have this anticipation, but is merely attempting to gain a little time in the payment, realizing that nothing of value has been given in exchange for the check. This can hardly be construed as giving a check with the intent to defraud, and consequently no action can be taken against the individual under the bad check law. Under the bad check law the first presentation against credit or merchandise of a check that is returned "No good" constitutes a basis for action. It has been stated on competent authority that forged checks cost the banks and business men of this country $30,- 000,000 a year, and when to this appalling amount the addi- tional losses sustained through the "Insufficient funds" and "No account" checks are added, credit men can readily ap- preciate the danger and menace to themselves from these evils. The New York Law The bad check law of the state of New York which became effective September i, 191 8, and which constitutes section 1292-A of the penal law of .that state, reads as follows: CUSTOMERS' TROUBLES 15 1 Obtaining money by fraudulent check, draft or order; how punished. — Any person who, with intent to defraud, shall make or draw or utter or deliver any check, draft or order for the payment of money upon any bank or other depositary, knowing at the time of such making, drawing, uttering or delivering that the maker or drawer has not sufficient funds in or credit with such bank or other depositary for the payment of such check, although no express representation is made in reference thereto, shall be guilty of attempted larceny, and if money or property is obtained from another thereby is guilty of larceny and punishable accordingly. In any prosecution under this section as against the maker or drawer thereof, the making, drawing, uttering or delivering of a check, draft or order, payment of which is refused by the drawee because of lack of funds or credit, shall be prima facie evidence of intent to defraud and of knowledge of insufficient funds in or credit with such bank or other depositary, unless such maker or drawer shall have paid the drawee thereof the amount due thereon, together with interest and protest fees, within ten days after receiving notice that such check, draft or order has not been paid by the drawee. The word "credit," as used herein, shall be construed to mean an arrangement or understanding with the bank or de- positary for the payment of such check, draft or order. Defects of the Law This law, while possessing certain merits, is defective from a practical standpoint. In the first place, in order to avail himself of the penalties provided in the act, the holder of an N. G. check must give the maker at least ten days' notice in writing that the check has been returned unsatisfied. The law is silent as to what will constitute valid service of such notice on the delinquent. Is the notice to be mailed or presented in person ? Furthermore, ten days is a long time to wait to hear from the check. It stands to reason that if the check is issued with full intent to defraud, the guilty person is not going to remain in the neighborhood for ten days, nor is he going to leave any forwarding address. 152 THE RETAIL CHARGE ACCOUNT If the notice were reduced to, say, forty-eight hours, it might be possible to get on the trail of the def rauder so much sooner and effect his arrest or detention while all the facts of the case were fresh in the minds of those who had anything to do with the customer and the transaction. If the law were also amended to provide that notice should be sent to the bank as well, it undoubtedly would cause the bank to get in touch with its depositor at once and arrange for an immediate adjustment. This suggestion is, of course, not applicable in the case of "No account" checks. Great care should be exercised in accepting checks drawn on a firm or a corporation with a pretentious name and signed by the purchaser himself. Sometimes a purchaser will give a check on a fictitious bank of his own invention. Papers of this kind have been construed as being merely promises to pay, being the same as a draft issued by a person on himself. In such cases no criminal action can be taken. In other words, the greatest care must be exercised in ac- cepting checks tendered by strangers, either in payment for merchandise or for obtaining cash. At all times the identity of strangers should be fully established. A merchant would not think of extending credit except on a satisfactory basis, and yet many men allow merchandise to be exchanged for a piece of paper whose value is no greater than the amount of ink on its surface. Even certified checks have fallen into low esteem. The fact that the check has across its face a stamp of certification bear- ing all the earmarks of genuineness, does not, per se, mean that it is good. It is surprising how many times a hurried phone call to the bank has elicited the information that such a paper is worthless. Stolen checks with forged indorsements, fake checks in pay- ment of a supposititious customer's bill, counter checks drawn on out-of-town banks, and checks of all descriptions come to CUSTOMERS' TROUBLES 153 the attention of credit men every day, and the sixth sense of divination is the only thing that keeps them from being de- ceived more frequently than they are, so varied and so clever are the devices used by unscrupulous persons. CHAPTER XI CREDIT OFFICE EFFICIENCY METHODS Efficiency Defined Efficiency has been characterized as "doing a thing right and doing it quickly" ; in other words, it is accuracy plus speed. There are those who can do a given task quickly but not ac- curately. Here, of course, efficiency is absolutely non-existent. On the other hand, there are those who can do a given task accurately but not quickly. This represents only 50 per cent efficiency. The problem, therefore, is how to train office workers so that they may produce as large a volume of work as is consistent with doing it correctly, in the least possible time, and with the least possible consumption of energy. Efficiency is not complex; it is simply difficult. In every pursuit the highest degree of skill is attained only after months or years of laborious effort. Accordingly, in order to develop efficiency work must be planned for the workers and the workers in turn must be trained until they can execute the duties set before them with all possible dispatch and with the utmost degree of assurance that the work will be properly done. High places are not filled by inefficient workers, and those who have attained the greatest success are those who have most closely adhered to and practiced the laws on which the principles of efficiency are founded. Efficient workers may possibly have achieved results unconsciously, but more than likely they set out for a predetermined goal by following well-known and commonly accepted standards and methods of procedure. 154 CREDIT OFFICE EFFICIENCY METHODS 155 Selling Service Efficiency in the credit office means that from the time the account is first soHcited or the appHcation for an account is received every operation in the office routine will be simply one step forward toward the desired goal and at the same time will be carefully and speedily checked so that no errors or misunder- standings may creep in to mar the work as it develops. To accomplish this properly, systematic methods must be adopted and adhered to closely, as otherwise frequent errors will result, causing excessive losses to the establishment as well as embar- rassment to the credit manager and customers. The selling of service today is equally as important as the selling of merchandise. Other things being equal, that store which serves its customers well will achieve a higher degree of success than the establishment which, while offering merchandise at perhaps equally attractive prices, does not accompany its sales transactions with equally efficient service. Service in the retail business means courtesy on the part of the merchant, from the officers or owners of the business down to the humblest employee. It means giving the customer exactly what she asks for, no more and no less. It is delivering the merchandise promptly and in a satisfactory condition. In short, it means trying to make the customer feel at home in|the store and to make buying in the establishment a pleasure and satisfaction. "Atmosphere" is probably the best term with which to describe the state of feeling of the customer who comes day after day into contact with the various members of the selling and non-selling forces and who goes out of the build- ing convinced that everything humanly possible has been done to cater to her comforts and induce her to make visits often. Qualifications of Application Clerk So far as the charge end of the business is concerned the question very frequently has been brought up whether pro- 156 THE RETAIL CHARGE ACCOUNT spective charge customers should be met by male or female clerks. This presents a very interesting study in psychology. Some stores feel a woman customer would rather transact busi- ness with a man, particularly with one who is thoroughly trained and gives every appearance of being familiar with the general policies of the house. It is contended that a man is more attentive and courteous to customers than a woman. On the other hand, other stores feel that a woman, particularly one in the position of application clerk, can more easily meet a woman customer on common ground and obtain from her essential bits of information than a man. Someone has said, however, that "one lady is not usually diplomatic with another, and if she were, the other lady would not allow herself to be handled diplomatically." Whether a man or woman clerk is placed in charge of this work, however, it is very important to bear in mind that the charge customer makes her first acquaintance with the store through the application clerk in the credit office and it is a mistake to put anyone at this desk, whether man or woman, who is not competent to meet all sorts of customers under all sorts of conditions. He or she should know enough of human nature to analyze rapidly the applicant and be able to avoid any remarks or questions which might tend to irritate her or create an unpleasant feeling. In the majority of cases the application procedure is a very simple matter. The buying public has come to understand that certain standards are re- quired of them when establishing the convenience of a charge account. They themselves come prepared to answer any reasonable questions which will tend to establish their financial and moral responsibility. There are those, however, who feel that any questions along these lines are more or less of a per- sonal reflection and take umbrage at them. As was explained in Chapter III, the application clerk can be of material assistance to the credit manager if he notes on CREDIT OFFICE EFFICIENCY METHODS 157 the face of the apphcation his own judgment as to the personal characteristics and apparent standing of the apphcant. If the credit manager could personally interview all prospective customers, the matter of passing on applications would be a comparatively simple matter and it would not take him long to reach a decision. Handling of the Application The next question after the application has been received, is, the time when the account should be opened and the customer permitted to purchase. Like the answer to almost any question that can be asked about credit office procedure, "it all depends"; and any credit manager knows exactly what those three words mean. Sometimes an account can be rated and placed on the books in just the length of time it takes the various clerks to write up the necessary papers and enter a record of the name in the proper place.' On the other hand, in certain cases it may require days before a final decision can be made. The great bulk of applications, however, lies between these two extremes, and these must be handled in an efficient and expeditious manner if the daily routine is not to be interfered with. The most satisfactory manner of handling applications seems to be to file the various applications in pigeonholes arranged alphabetically, one hole for each application, and have the new account clerk go over all the papers not less than twice a week to make certain that no undue delay is being occasioned. In cities where co-operative clearance bureaus are operated by stores, the various names are either phoned or dispatched by messenger to the central office, where the references are cleared and returned the same day. This information is attached to the respective application folders, which in turn are placed on the desk of the credit manager for rating. 158 THE RETAIL CHARGE ACCOUNT Where there are no such bureaus the names and addresses are taken off and handed to outside "runners," who go to the various stores and banks given as references and get the necessary information. These replies are written up and attached to the apphcation blank together with any mail received from out-of-town references or individuals who can- not be conveniently reached by telephone or in person. It is surprising how frequently customers who give several refer- ences, including those of out-of-town stores, expect the ac- count to be opened and ready for use inside of twenty-four hours. Visible System of Filing Names After the account has finally been opened and a limit as- signed, the customer's name must be filed. There was a time when it was filed on a 3 x 5 index card in a big drawer which held several thousand other names. The filing was supposed to be safeguarded by a decimal system of numbers and "split" letters, so that even a blind person could file a card in its proper place. In spite of all these precautions, however, index cards had a habit of being misfiled, and it required constant supervision on the part of the office manager to see that his master index was always correct and up to date. Among the new methods which have materially eased the credit office routine, however, is that of the visible filing system by which the name and address and other essential information about each customer are entered on a single line of paper, which is inserted in a transparent celluloid tube. These tubes are filed in "book" form or on a rotary stand. Where ad- ditional information is required two cards are used for each customer, one overlapping the other. The concealed portion of the card is made visible by simply lifting it or by sliding the card along in the shallow drawer in which it rests. This is the first step in filing customers' names in a manner to enable their CREDIT OFFICE EFFICIENCY METHODS 159 being located at once and with a minimum possibility of error. The system will be described more fully at the close of the chapter. Suffice it to say here that there must be a master index, constructed in such a way that once the customer's name is placed on the books it is always readily accessible. Proper notification must be sent to the bookkeeping, col- lection, and auditing departments so that they may know that the account has been established. At this point the store is ready for the customer to begin her purchases. Recording Customers' Purchases Adequate provision must, of course, be made for properly recording the many sales made day after day and for taking care of merchandise returns and making sure that any pay- ments made by customers will be faithfully and plainly re- corded. There must be some record to show that customers are actually being charged for merchandise which has been pur- chased and delivered and that no goods are allowed to be re- moved from the house without such a record. It is the func- tion of the bookkeeping and auditing departments to supervise these various operations. Machine bookkeeping has done more to speed up this part of a firm's business than any other one improvement offered for sale. In the succeeding chapter, "Bookkeeping Depart- ment Methods," the value of the dual system and how this system can best be operated by the use of machines will be clearly demonstrated. The credit manager must know at a glance the state of the account, the amount owing, and for how long a time it is past due, and for this work the bookkeeping machines have become a great factor. Faulty records or inability to be informed quickly about an account being slow or over the limit fre- quently means loss. Hand bookkeeping possesses so much of the human element that mistakes are sure to occur. On the l6o THE RETAIL CHARGE ACCOUNT Other hand, machine bookkeeping practically eliminates errors. The daily balances on accounts are always visible. There is no delay in producing reports when wanted, and trial balance difficulties are virtually non-existent. Daily and monthly balances are provided at the same time because the machine automatically prints its totals and proves each day's work at one operation. In other words, these machines tell the whole story of every transaction in the ledger. By their installation substantial reductions in pay-rolls and great savings in floor space are effected. The customers themselves are better satis- fied because bills are rendered more quickly, are more legible, and freer from material errors than in any other method. Visible Records for Authorizers The routine of authorizing charge checks has already been discussed at length in Chapter VI, "Authorizing the Charge." It was there shown how essential it is that the right tjrpe of clerks be employed for this branch of the work. These clerks are virtually assistants to the credit manager, since sales checks first reach them for approval as to whether or not merchandise may be safely delivered to the name and address given. This work must be done quickly in order to give prompt service, to prevent packages accumulating and clogging the delivery system, and to permit customers to get goods over the counter with the least possible delay, embarrassment, and irrita- tion. To accomplish this the system of filing customers' names and addresses must be such as will admit of immediate refer- ence. The illustrations following (Figures 12, 13, and 14) show several typical installations of the visible filing systems now in operation in some of the most successful establishments. The old-fashioned way of filing cards vertically in drawers is slow and unsatisfactory; it does not show at a glance the information desired and there is always the possibility of cards being misfiled, causing unnecessary delay and loss of time and CREDIT OFFICE EFFICIENCY METHODS l6l money. Visible records on the other hand ehminate all this waste and loss of time. At a glance there are presented before the authorizer all the essential facts which he must know in Figure 12. Tube Design — Visible Filing System order to pass properly upon the charge as presented to him. The name, address, limit, and other special instructions can be made to appear on a single line of information. Manufacturers of visible indexes claim a saving of 75 per cent in labor cost because of the speed in handling the work. The use of the indexes results in quick service to customers and more purchases during the course of the day, and it renders the handling of a large volume of business a comparatively simple matter. The store that does not give quick service to its customers falls short of its possibilities. Visible Card Index System Not so long ago it was considered quite sufficient if the customer's name and address appeared on the index with 1 62 THE RETAIL CHARGE ACCOUNT possibly a limit, which was intended to show the maximum amount of purchases that could be charged on the account and which was seldom raised or lowered. Nowadays, however, the wide-awake credit man is constantly on the lookout for information that will enable him to protect himself at every stage of the business. A man's judgment is no better than his information, and he cannot truly be efficient unless he is fully informed about his work. Changes of names by marriage or otherwise, deaths, divorces, domestic and business difficulties, and any other information appearing in the daily newspapers affecting the credit standing of the customers are now filed in their proper places. As the result of data thus collected it is frequently necessary to place some sort of colored signal on the index entry so that at the proper time the right action may be immediately taken and the interests of the house and of the customer protected. The master index is the logical place to find all this in- formation, as it is manifestly impossible to place anything but the briefest record on the single, or even two lines, of the visible index of the tube design. For this purpose there are in use several visible card index systems which facilitate immediate reference to all such information. In a great many houses it is the practice to have the customers sign signature cards, which form the basis of the visible card system. The following illustration (Figure 13) shows a rather remarkable layout in which a flat-drawer visible system is employed. Cards measur- ing 3x5 inches are arranged in alphabetical order and laid out flat, all of which can be referred to at a glance without the ne- cessity of thumbing over lists of cards and "dog's-earing" them. The question is frequently asked : What is the best arrange- ment of filing names according to the alphabetical system? The best plan is undoubtedly that adopted by the telephone companies in the large cities whose directories are master- pieces of their kind. These names are arranged in strict CREDIT OFFICE EFFICIENCY METHODS 163 alphabetical order with the last name of each individual placed first. If there are more than one of a particular last name, these are arranged in alphabetical order in accordance with -' ''H"^"''"~ JHI ■■1 SniiMpPrlrl - jIS ! ^HH rRh i^^ ^t!iii '^^BsnE pUHH vaj ^■B w •'3ft^'' ^^^B-131 ^K Sis JBfr ^^^^S ^^ni^''i B^^^Mat i^H! ^^1 H^B^"^' *<} hw| IHl 5^'*'**v,S '""^-'W 11 ~-^^^^^^^^^^i Figure 13. Flat- Drawer Visible Filing System the first name. The second given name is taken into considera- tion only when there are more than one of a similar first and last name. The following is a sample of this order of listing: Smith, A. Smith, A. L. Smith, A. Leonard Smith. Albert Smith, Albert C. Smith, Albert Delmont Smith, Anne Mrs. Smith, B. Smith, Barry C. Etc. Misspelled Names Where there is any possibility of the same name being spelled in dififerent ways, cross-index cards should be inserted 164 THE RETAIL CHARGE ACCOUNT in the proper places instructing the clerk to try some other spelling. For instance the name Schultz may be spelled Schultze, Shultz, or Shults, and Levy may be spelled Levey, Leavy, or Leavey. Brown, Green, Smith, together with a host of Mc's and Mac's, and many other names, show the Figure 14. Geographical or Location File necessity of these cross-index cards. Great care must, there- fore, be taken when an account is opened to obtain the full name correctly spelled. These suggestions seem so self-evident that it might be thought a waste of time to refer to them, but CREDIT OFFICE EFFICIENCY METHODS 165 every credit manager or head of a bookkeeping department knows how frequently he is confronted with situations due to the neglect of these very things. In the rush of the day's work clerks will do no more than is absolutely necessary, and the credit man's records must, therefore, be as complete and accurate as possible. In the delivery department many houses have a cross-index of customers' names in the shape of a geographical or location file (Figure 14) which is a duplicate of the original index, except that the names are classified by streets. This is well worth the additional labor and expense involved, for unless the customer can be located by referring to a street index, faulty or illegible spelling of names occasions much delay in the delivery of -the merchandise. Then, too, salesclerks have a habit of omitting the customers' names, although carefully taking down their addresses. Elasticity of System One feature of the visible index systems not given the atten- tion it deserves is the provision that may be made for their expansion. At no time should the panels be filled to more than 75 per cent of their capacity when first installed, and additional blank panels should be provided at sufficiently frequent intervals so that expansion may be made with the least possible delay and confusion. The companies installing these devices gener- ally know from experience what letters in the alphabet fill up more rapidly than others, and most of the additional blank spaces may be provided for these letters. As new entries are made daily, the clerk whose duty it is to see that the new tubes or cards are filed in the proper places should be warned against filling up the panels completely and should also be instructed to notify the office manager at once when there is any possibility of a "jam." Too frequently several entries are stuck in by their ends on the face of a panel either because l66 THE RETAIL CHARGE ACCOUNT of the clerk's negligence or because the panels are too full. Oftentimes the filing of original records, such as customers' applications, account cards, and the correspondence in the col- lection department, does not receive the attention it should. The cabinets for the filing of these records should be made of steel, first, because they wear better than wooden cabinets, secondly, because they occupy less room, and third, because additions can be made to them without destroying their uniform appearance. Too frequently a house will select a certain size card or folder and build a filing system upon it. The procedure should be reversed. The various sizes of stock cabinets on the market should be first taken into consideration and the folders cut and printed according to the dimensions of the cabinets. Double-Column Cabinet Drawers A good arrangement for filing customers' reference fold- ers is a cabinet, consisting of a tier of drawers seven high, with space in each drawer for two columns of folders lying side by side. The folders should measure 5x7 inches and be of heavy manila paper. On the outside of each folder all the essential information regarding the customer is typed. Within the folder are placed pasted references from other houses, clip- pings from whatever source touching on the customer, and the portion of the correspondence between the customer and the house which may at a later date have some bearing on the treatment of the account. The ordinary commercial letterhead can be safely trimmed to fit this folder. Care must be taken, however, that the name appearing on the top of the- letterhead is preserved intact, as far too frequently this very valuable piece of information is carelessly clipped ofif by the file clerk when trimming the letterhead to fit the folder. CREDIT OFFICE EFFICIENCY METHODS 167 Tickler System In the collection department a tickler system based on the i-to-31 plan seems to find the highest favor in following up collection correspondence. When the first letter is sent to a customer requesting payment and it is desired that it should come up again for attention, say, within ten days, the carbon of the letter is placed in the tickler, under date ten days ahead. Also a card bearing the customer's name and address is set up in the correspondence index file, on which is marked the date when this account is to come up again for attention. These files should be of full correspondence size so as to avoid folding the material. A great many concerns follow up accounts every ten days, thus turning over their entire collec- tion correspondence three times a month. If the accounts themselves are carefully reviewed and the collection index cards are checked against them, there will, be no possibility of an account being overlooked and not receiv- ing proper attention. Where the collection card method is used as described in Chapter VII, "Collections," there is no need of the collection card index file, as on the marginal space of this card the date on which a letter is sent to the customer may be placed. Inasmuch as the figures representing pur- chases and payments appear on the same card, together with a code description of the letter sent to the customer, a great deal of time is saved by not having to refer to the files to learn the character of the letter. Following Up Instalment Accounts In the instalment business it is very essential that accounts be followed up closely, for each month a customer fails to pay the amount in arrears increases by so much. In the case of a straight charge account it is easy enough to close the account and so restrict further purchases. The customer may still be in arrears for a longer or shorter period, but the amount he l68 THE RETAIL CHARGE ACCOUNT owes remains the same, or at least it should remain the same. Where payments are made monthly or weekly close tab must be kept on the customers, first, in order that they be educated in the proper habit of payment, and second, that the percentage of collections to "outstandings" may be maintained at as high a figure as possible. Too often the clerk placed in charge of this work does not realize the importance of his duties and treats an account in a purely perfunctory manner, sending out letter No. i, then No. 2, No. 3, and so on down the list without giving the customer the individual treatment he requires. One collection manager has very wisely said that he would prefer to write the first collection letter to the new account which falls in arrears for the first time and leave the subsequent series to any clerk in the ofifice, than to let a clerk write the first letter and himself sign the last one, when the account is about to be sent to the attorney. Accounts are usually opened on the basis of prompt settle- ment every month. Some stores, however, require that pay- ment be made by the tenth or fifteenth, thus establishing a danger line from which they can later work without embar- rassment to themselves. Under this system when a new account finds its way unpaid into the second month then is the time to bring to the customer's attention the fact that her account is being watched. Once allow customers the habit of paying as they will and you are sowing an endless amount of trouble for yourself in the future. It is as easy to cultivate right habits as wrong habits on the part of customers. Address Changes Changes of address should be recorded legibly by responsi- ble clerks and entered in as many places as may be necessary. No delay should be allowed to interpose between the notifica- tion of such change and the actual entry on the records, as too CREDIT OFFICE EFFICIENCY METHODS 169 often embarrassment is occasioned by having to write or tele- phone the customer to verify the new address appearing on the sales check. Changes of names, particularly those occasioned by mar- riage, should under no circumstances be allowed to be put through without being O K'd by the credit manager or his as- sistant. Very frequently the new state of the account from a credit point of view is less desirable than before, and it is there- fore natural for the credit manager to want to know all about the new husband, his place of business, and his credit standing. If necessary, the customer should be requested to furnish the essential information to enable the credit manager to arrive at a proper understanding of the new arrangement. The Telautograph Besides the systems above described there is an electrical mechanical writing device known as the "telautograph," which has been gradually making its way into large establish- ments. Its operation has been so successful that it would pay those who have not investigated its merits to do so at the earliest opportunity. A typical installation is that of a com- bined receiving and sending station placed in the credit office, in any branches on the other floors, and in the bookkeeping department. Inquiries can be made from one office to the other as to how much the customer owes, how she is paying her bills, or any other details that may be necessary to discuss intelligently a matter of credit or accommodation with a particular customer. Inquiry can be made and the reply received in writing in the length of time it requires the clerk at the other end to obtain the information and write it electrically. The inquirer ties up no telephone while waiting for the reply, nor is he even obliged to hang up a telephone while waiting and call later. The signatures or initials of the persons making and answering I70 THE RETAIL CHARGE ACCOUNT inquiries appear on the slip, and should there be any occasion for referring to them at any later time responsibility for the information can be immediately established. The instrument can be used in a great many other ways, as between the stockrooms and the selling floors, between the private offices of the general manager and the members of the firm, or between other offices which require brief but im- mediate replies, preferably in writing. A casual investigation of prominent hotels and banks will show the extensive use of this invention and the secrecy with which confidential in- formation may be handled. Credit men are rapidly becoming converted to its use, and this is another indication of their efforts to increase efficiency in their office methods. Automatic Typewriter The mechanics of collection letters and the collection letters themselves have been discussed elsewhere at considerable length. Whether or not in routine work, printed forms, with the name, address, amount owed, and the length of time it has been owed filed in, are better than individually written letters, is a matter on which there may be a difference of opinion. Both methods are used with great success. It would seem, however, other things being equal, that the letter which was completely written on a machine and showed no evidence whatever of filling in would create a better impression on the reader than the printed form. Such "straight" writing, however, is ex- pensive, as it means that the typist must write the entire letter, and where there is a large volume of correspondence with many accounts to be gone over several times a month, the item of cost is very heavy. An automatic typewriter has been recently perfected which turns out in unlimited quantities form letters that are individu- ally written by the machine but are not the output of individual typists. "Master" record letters are written on paper rolls, CREDIT OFFICE EFFICIENCY METHODS 171 much on the same plan as player piano records, and all that has to .be done is for the operator to fill in the name, address, amount owing, and any other necessary items. It is claimed by the manufacturers of the automatic type- writer that one skilful operator can supervise the work of a battery of machines and turn out a large quantity of absolutely perfect letters which give every appearance of being indi- vidually written. The initial expense of the installation of the machines is more than offset by the saving in typists' salaries and the uninterrupted flow of work which can be maintained. In addition, the machines can be used for special advertising campaigns in which form sales letters may be sent to a special list of prospects. Where a full-page letter is being written with only the customer's name and address to be filled in, the saving of time and expense is remarkable and the results are all that the most critical could desire. As for the letters themselves it must always be borne in mind that wherever possible they must be constructed with a view to impelling the customer to action. Collection forms should not be merely dry-as-dust pleas or harsh demands for payment, but should be dignified but forceful. Much time should be spent in their preparation. Frequently it becomes necessary to notify the customer that merchandise will be delivered but that payment of the account must be made before other goods will be charged, or even perhaps that delivery of the merchandise already purchased will be withheld until the account is settled. Such letters must be couched in unmistakable terms and should call attention to the house's established terms of payment. Frequent delays on the part of customers in making pay- ments are due to the store's improper methods of education. It is surprising how many customers actually feel that the rules which stores have promulgated regarding the payment of bills are intended for someone else and not themselves. There 172 THE RETAIL CHARGE ACCOUNT should be so far as possible a personal tone in the letters so that the recipients will feel that they are being addressed directly and not receiving letters sent out to thousands of other customers. This is one of the strong arguments in favor of the automatic typewriter, as with a properly drafted letter the message seems to be intended directly for the reader. Premature Sending of Collection Letters Before a collection letter is sent out great care must be taken to determine whether or not payment has been received on the account at least as late as the last cash posting. For this reason money received by the various cashiers must be posted at once. Even under the most favorable circumstances, how- ever, it is frequently impossible to avoid sending out a letter to a customer who has just made payment a few hours before. Too frequently the error is due to the fact that the bookkeepers are a day or more behind in posting their cash. Letters sent out under these circumstances are embarrassing to customers ; it is also embarrassing to the office to be informed by the customers that they have already made payment. Co-operative Spirit of Workers These are some of the nicer points which make for greater efficiency in the operation of the credit department. The credit or office manager should see to it that everyone, no matter in what capacity he is engaged, realizes that his part of the work is not simply that of a detached or disinterested clerk but that it fits in with the whole scheme of things in the house and tends to make or mar the pleasant relations of the establishment with its customers, for the promotion of which great pains are taken and much expense is incurred. CHAPTER XII BOOKKEEPING DEPARTMENT METHODS Old Method of Listing and Billing After a customer has been granted his application for an account, has made his purchases, and the goods have been de- Hvered, the store's most important problem is still to be solved. Until money is received for the purchases the transactions cannot be considered as completed or satisfactory to the seller. These charge purchases necessitate considerable bookkeep- ing. They must be correctly listed and billed to the customer in an intelligible and legible fashion so that he can distinguish readily the various items he has bought. The old way of listing and billing was in the main the same in most stores. It involved the entry in the ledger of the total of the vouchers coming through during the day on any one account. It was usual to add the total of sales checks together mentally and enter the total of all these checks in the debit column, writing the amount at the same time on a tally or proof sheet and on the back of the last check, pinning all the checks together. After being entered the checks were handed to the biller who typewrote them upon the customer's monthly bill. Theoretically, the biller was supposed, after entering all the items of the sales checks on the bill, to add the column and see if the total was the amount the bookkeeper had posted on the back of the last sales check. In most houses a balance column was carried in the ledger and the balance of the customer's account was entered in this column either daily after each posting or at the end of the month. The plan involved the footing of the ledger and the 173 174 THE RETAIL CHARGE ACCOUNT bill towards the end of the month, to check the amount entered on the bill against the entries in the ledger; but before this could be done the unpaid balances of the previous month had to be entered on the bill and included in the total. Discrepan- cies between the totals were frequent and the process involved a considerable amount of labor. Eliminating Congestion A person who was in charge of one of the largest depart- ment store accounts receivable offices in the country said he never approached the end of the month without a feeling of dread as to what would be the result of the month's work. For that reason it was decided to find a way, if possible, of doing the work of the office which would remove confusion and congestion at the end of the month when the bills were gotten out. It was customary in the office referred to to close the month's work with the purchases of the last day. All purchases made up to the very last moment of the month the store was open were included, and the bills had to be gotten out on the following day. The feat was accomplished without exception, but at a terrific cost of labor and nervous energy, including much overtime. For two years experiments were made with various methods of mechanical accounting in order to do away with much of the labor connected with the issuance of bills at the end of the month. It was also desired to have all trial balances found during the first few days of the next month, and finally a scheme was evolved. Before describing it, how- ever, it may be well to state here that a good accounts receiv- able system involves much more than the mere method of entering debits and credits upon the ledger and the bills. The credit man must know that charges belong where they are found, and hence the method of auditing the accounts is almost as important as making the entries. Besides, a good accounts BOOKKEEPING DEPARTMENT METHODS 175 receivable system should permit speedy and easy reference to the account by the credit department. Mechanical Accounting Those considering the introduction of mechanical methods or improving the methods they already have should first work out in their own minds the ideal mechanical accounting system. They may be unable to adopt this ideal system but they will approach it if they compare the various methods and choose the one best adapted to their purposes. Among the things to be provided for in any scheme of mechanical accounting is proof of the fact that all the items of the month are correctly posted on both ledgers and bills, that they are accounted for and none are omitted from either ledger or bills, that the old balances in the accounts are properly picked up in the machines on both ledgers and bills, and that the resulting new balances are correctly computed. Proof must also be had that debit items are entered in debit columns and credit items in credit columns, and that the items posted and billed have been so posted and billed to correct accounts. At the conclusion of the month's work trial balances must be made immediately and without trouble and the labor of footing thousands of bills at the end of the month and proving them against the ledger must be eliminated. In addition to this, the .bookkeeping department must be able at any moment to tell the credit department the exact standing of any account ; and to do this it must keep up to date with its posting and billing. Dual Plan of Accounting There are three kinds of ledgers kept in department store accounts receivable departments — the itemized ledger, the de- tailed ledger, and the skeleton ledger. The itemized ledger is one which is merely a copy of the bill and shows not only the amounts the customer owes but also the articles purchased. 176 THE RETAIL CHARGE ACCOUNT Such a ledger is unsuited to the plan about to be described as is also the skeleton ledger, which is simply an entry in the ledger once a month of the total of the customer's account. The detailed ledger shows not the individual items but only the amount of daily purchases, credits, and payments. In the dual plan of department store accounting, which is about to be described, the keeping of the ledger is entirely separate from the making of the bills. The procedure in properly carrying out the dual plan of accounting is somewhat as follows : The charge checks are collected from the various authorizing stations at intervals of about one hour starting at noon, and are taken to the audit department, where they are roughly sorted according to the ledger divisions to which they belong. This is accomplished by means of a set of pigeonholes marked with the various divisions into which the ledger controls are divided. For instance, the first control may be for the names beginning with the letter A, the second control for the names beginning with BA, the third control from BE to BK, and so on. The checks are put into the pigeonholes after each collection and remain in that rough order until late in the afternoon, when they are sorted in strict alphabetical order by ledger divisions, so that by the time the store closes the checks are already to be entered upon the ledger save for the few that still remain uncollected. These few are obtained immediately upon the opening of the store the following morning and in a few minutes are sorted into their places with the rest of the sales checks. The whole day's work is then handed over to the bookkeeping department for entry upon the books. Handling Cash Vouchers While waiting for the charge checks the accounts receivable department is not idle. The cash received during the preceding day is as a rule much lighter than the sales checks, and there- BOOKKEEPING DEPARTMENT METHODS 177 fore the girls who run the bookkeeping machines begin the day's work by posting cash. Neither are the billers idle, for while the audit department is completing the sorting of the sales checks and while the girls who run the bookkeeping machines are occupied in posting the cash, the billers take the merchandise credit slips and check them off against the bills to see that the customers returning the merchandise were actu- ally charged with such merchandise. By the time the cash is posted by the bookkeeping operators and the merchandise credits checked by the billers, the audit department has com- pleted the assorting of the sales checks and the work of the day goes forward smoothly and without delay. Posting the Books The method of posting the books requires the division of the mechanical machines into sets of three. One of each set is used by the operator who posts to the ledgers and the other two by billers, who place on bills the amounts posted to the ledger. The reason for the division is that the operator who posts to the ledger, not having to describe the articles pur- chased, is able to handle about twice as many vouchers per day as a biller can bill. In order that neither biller in the set shall be without work, it is customary for the girl who does the posting to divide the set into two parts — one part for one biller and the other part for the second biller, She posts a unit of work on the ledger of biller No. i first and follows that by a unit of work for biller No. 2, returning to post a second unit of work for biller No. i and then a second for biller No. 2. In this manner each biller is kept constantly supplied with work. Given in detail the procedure is as follows : The operator posting to the ledger takes a unit of sales checks on the first part of her set and places it on the shelf on the right side of her machine. On the left side of her machine she has a rack which 178 THE RETAII, CHARGE ACCOUNT m z 3 < 9 » •^ ooooo 00 nooo 1124' >0<00 .a CO I o o pq J3 &H BOOKKEEPING DEPARTMENT METHODS 179 holds her ledger binder. She opens the binder and places it in this rack. Taking the first sales check, she removes from the ledger the sheet (Figure 15) upon which that sales check is to be entered and puts it in her machine. She then picks up in her machine the amount of the balance the customer now owes, posts her sales check, and looks at the next check to see if it belongs on the same account. If it does, she posts that also; if it does not, she writes out the balance which her ma- LEDGER CHARGES JAN 10 1922 POSTING TALLY A RFH *** 23 50 41 25 6 75 37 25 108 75* 180 75 15 00 23 00 218 75* 188 37 18 50 206 87* 160 64 317 20 2 00 479 84* 253 40 37 85 17 10 8 75 317 10* 166 25 5 45 188 00 359 70* 700 35» 1 691 01* 990 66* Figure 16. Tally Made by Bookkeeping Machine in Dual Plan Mechanical Bookkeeping chine indicates is now owed by the customer, which is the sum of the old balance put in the machine plus the new posting. She removes the sheet from her machine and returns it to the l8o THE RETAIL CHARGE ACCOUNT binder at the place from which she took it, examines the next sales check, obtains from the binder the corresponding ledger sheet, makes her new entry on that sheet, and when through returns it to its place in the binder, and so on through the whole unit of work. While the operator is doing this, her ma- chine is keeping an accurate record of all the old balances which she picks up, all the postings which she makes, and all the new balances. Not only does the machine store this up, but on a carbonized tally roll which works behind the ledger sheet (Figure i6) it makes an actual impress of all entries in the money columns of the ledger sheets. When the operator gets through with the unit of work, she has on her tally roll totaled lists of all old and new balances and postings. She detaches this tally strip from the machine, folds it, and places it with the sales checks and passes along the unit of work to the super- visor. The supervisor removes the tally strip and sends the work to the biller for entry on the customer's bill. Work of Billing The biller now takes these checks and enters them upon the •ustomers' bills (Figure 17) in the same way as the posting operator posts them to the account, the only difference being that the biller instead of entering the total of each sales check on the bill enters the details line by line. The biller's machine, like the poster's machine, is equipped with a tally roll (see Figure 18) covering the money columns of the bill, and the biller, like the operator of the posting machine, is required to commence each billing by picking up the old balance in the machine. In order that the customer may not be confused this old balance does not appear on the bill, but only on the margin of the duplicate of the bill. When the biller has completed a unit of work her machine also shows the total of the old balances which she has picked up, the total of the entries to the bill (Figure 17) which she BOOKKEEPING DEPARTMENT METHODS l8l has made, and the total of the new balances. She removes from her machine the tally strip showing these figures, places it with ^y'toae^ -and^^omfiOTiAJ' New York. W E AMBROSE 1243 UNION ST NEM YORK CITY TrBM«' SCTTLfMEKTS RCQUIRn THE 1 nerunN ""■ riBST P*BT or e*CM MOMTM BgJ^u-n" • ' — - 922 UN2 4 289 341 345 240 ACCT. RENDERED END OF LAST MONTH 1 PICTURE 1 PICTURE FRAME 1 PR SHOES 1 PR RUBBERS CASH 1 COAT 1 WAIST CHARGES 43 25 32 75 15 60 1 75 IF BILL IS INCORRECT IN ANY PARTICULAR PLEASE BNCLOSK CHBCK FOR ALL ITEMS THAT ARE CORRECT DEDUCTINS DIFFERENCES WITH EXPLANATION. IF FOR RETURNED " Mlpamlolli REniRMED'™E!AST^'HREE■DAYS OF THE MONTH WILL BE CREDITED ON THE FOLLOWING BILL. Figure 1 7. Customer's Bill Used in Dual Plan Mechanical Bookkeeping (origi- nal and duplicate) . (Size : original, 6^ x 1 1 K ; duplicate, 8 x 1 1 J^) the sales checks, and hands her work to the supervisor. There are now two records of what has been done — one showing the state of the accounts on the ledger and the other the state of the accounts on the bills. The supervisor opens up both tally strips, 182 THE RETAIL CHARGE ACCOUNT compares the totals one with the other, and if they all agree, passes that unit of work as a balanced piece of bookkeeping and billing. (See Figures i6 and i8.) Should there be a dis- Bias CHARGES JAN 10 1922 BtUrNG TALLY A EJN *** 41 25 12 50 11 00 3 75 3 00 22 75 14 50 108 75* 180 75 15 00 13 50 9 50 213 75« 188 37 18 50 206 87* 160 64 242 50 74 70 1 25 75 479 84* 253 40 12 25 25 60 15 35 1 75 8 75 317 10* 166 25 3 25 1 65 55 43 00 145 00 359 70* 700 35* I 691 01* 990 66* Figure i8. Tally Made by Billing Machine in Dual Plan Mechanical Bookkeeping crepancy, however, between these totals, he will know that what has been done on the bill does not correspond with what BOOKKEEPING DEPARTMENT METHODS 1 83 has been done on the ledger, and since he has the totals of all old balances picked up and the totals of all new balances, it is a matter of a moment's work to locate the account or ac- counts in which there is a discrepancy. Reference to these accounts and the sales checks instantly shows whether the work of the biller or the posting operator is incorrect, and he promptly has the error corrected and the work balanced. It will be noticed that this system does not involve any listing of the sales checks before posting or billing, neither does it involve any listing of the old balances before beginning the posting or billing, or any listing of new balances upon the completion of the work — all this being done automatically by the machine as the actual work of posting or billing proceeds. Automatic Proving When all the work of the day has been done, including the posting of the cash and credit items in the same way as the sales checks, the slips are turned over to the auditing de- partment, showing what sales, merchandise credits, and cash have been entered during the day on each ledger division. Since the work has already been proved it is not necessary for the audit department to add the vouchers to see if they total correctly. The department can therefore immediately start to sort these checks to sales divisions. When these have been added by machine with the view of entering credits to stock accounts, the totals so obtained in the subdivision by depart- rrients should be the same as the bookkeeping department ob- tained by ledger controls. Revert now to the proofs which are to be obtained auto- matically. It is found that all items are correctly posted as to amounts on both ledgers and bills, for otherwise the tally strips would show different totals for the amounts posted and for the new balances. It has also been proved that every item is accounted for, since if one had been omitted by a biller or by 1 84 THE RETAIL CHARGE ACCOUNT a poster there would also be different totals for the amounts posted and the new balances. Further, the old balances have been correctly picked up on both ledger and bills, as otherwise the old balance columns as well as the new balance columns would show discrepancies. Again, all debit items are entered in debit columns, and all credit items in credit columns, for if a debit item had been placed in a credit column the machine would have automatically subtracted and so would have obtained diflferent totals in the posting and new balance columns from the totals obtained on the other machine. It has also been shown that the items have been posted and billed to the correct accounts, for if a sales check had been posted to one account and billed to another, the two operators would have begun their work by picking up different old balances, so producing different new balances. The discrepancy would have been shown on the tally strip. This holds true in all cases save where by coincidence the old balances on the two accounts involved happen to be the same. In this case there is no means of proving by either mechan- ical or mental work. Nevertheless, while the error might not be detected the first day, it would be discovered later in the month, whenever a subsequent entry was made in either account. Since the machines compute balances after each entry made to the ledger or to the bill, the labor of footing either the ledger or the bills at the end of the month is eliminated and accounts are ready to be mailed immediately the last entry for the month is made. Trial Balances The trial balance is yet to be considered in connection with this dual system. It may be taken for granted that if the figures of the trial balance on the first of the month are known to be accurate, and if the daily work during the month has BOOKKEEPING DEPARTMENT METHODS 185 automatically been proved to be correct, then the trial balance figures coming from the ledger at the end of the month are bound to be correct, provided they are drawn off accurately. It is the experience of some houses that from 90 to 95 per cent of their monthly trial balances prove to be "first-shot" balances. The small remaining percentage represents cases in which er- rors were made in drawing off the trial and a correct result followed from the checking back of the trial. Errors Reduced to a Minimum The errors arising in such a system of mechanical account- ing as has been described are few and far between, and the value of the system to the credit man can hardly be overesti- mated, as he is able to rely absolutely upon the accuracy of the work of the accounting department. Of course, no scheme of mechanical accounting will prevent a billing girl from wrongly describing an article. If she bills "i shirt" as "i skirt" through inaccurately reading the sales check it is practically certain the store will receive a complaint from the customer, and there is no mechanical device to prevent such errors. However, by supplying the billers with a list showing what goods are sold in the various sections of the store and by insisting upon their checking illegible writing on sales checks against the sales section number, it is possible to reduce such errors to a mini- mum. Rewards may be offered for accurate billing, and by entering every complaint received during the month for incor- rect billing against the name of the biller making the mistake it is possible to eliminate all but a very few of the errors. This has an extremely important bearing upon the work of bill adjusting. When such errors are reported it is possible for the adjusting bureau to make the necessary rectification instantly. As the number of the sales section as well as that of the salesperson is entered on the bill, the adjuster knows at once that an article described on the bill as "i comb" is l86 THE RETAIL CHARGE ACCOUNT really "i combination suit," since combination suits come from the section whose number appears on the bill. One store which has the dual accounting system has now only one bill-adjuster, with his desk in the accounts receivable office. Formerly it had more than a dozen and they were found to be a considerable nuisance, as they were continually inter- fering with the work of the bookkeeping department, looking up information in order to settle complaints. Advantages of Dual System It is very often supposed that such a scheme of accounting as that described is more expensive than a method in which a copy of the bill is used as the ledger sheet, or one in which the bill is made first and then the total of the daily posting, as accumulated on the bill, is thrown on to the ledger sheet, the old balance on the ledger being subsequently picked up and the new one computed. This impression is erroneous for two reasons. In the first place, the time taken to align the bill, the duplicate bill, which acts as the ledger sheet, and the necessary proof sheet, together with the fact that in order to show post- ing to the right account it is necessary to write the customer's name on the proof sheet every time a posting is made to the account, takes as long as, if not longer than, doing the posting and billing operations independently. Moreover, many of the accounting checks absolutely necessary to accuracy are not obtained in these other methods. Even if a saving of time were effected in the actual accounting work it would be more than counterbalanced by the time that would have to be taken in adjusting errors made in billing, which would be numerous because of the lack of accounting checks. In the second place, to place and align the ledger sheet in the machine, pick up an old balance, and compute a new balance involves the same amount of labor as when the work is done by independent operations. Moreover, time has to be taken to BOOKKEEPING DEPARTMENT METHODS 187 establish a predetermined total of all the postings to be made, and also to run off a list of either the old balances to be picked up or the new balances to be created, or both, as the machines used in these methods are not equipped, as a rule, with a sufficient number of adding accumulators to carry full totals of postings made, old balances picked up, and new balances created- The ability to prove postings to the right account is ex- tremely valuable, as there is nothing which displeases a custo- mer so much as to receive a bill for merchandise she did not purchase. To prevent offending a customer is a far more valu- able asset to a store than to adjust complaints promptly. This is appreciated by credit men, who are always striving to obtain and keep the good-will of the store's customers. From the point of view of the executives of the store, the dual plan also is of great advantage because of the fact that trial balances are so readily obtained, demonstrating that the accounts receivable work is being done as it ought to be done. In the accounts receivable office itself the advantages of the dual system are, of course, much greater than the other systems. There is little or no confusion or congestion during the closing days of the month. There is no correcting of accumulated er- rors uncovered by checking out the bills against the ledger, because the corrections are made automatically as they occur day by day and the machines prove the accuracy of the com- putations in each account as it becomes active during the month. In a word, the dual accounting method spreads the labor of the accounting work evenly over the entire month except, of course, for changes in the daily sales. The secret of successful mechanical accounting is first a careful analysis of what is required to be done and then patient instruction. Larger Output It is not a mere theory but a demonstrated fact that by means of the dual plan of mechanical accounting it is possible l88 THE RETAIL CHARGE ACCOUNT to eliminate almost all the errors which have marred the book- keeping of retail stores in the past and at the same time turn out a very much larger volume of work. An operator who runs a posting machine can easily maintain an average of i,ooo postings per day, and the biller can, with the greatest ease, if she is properly instructed, maintain an average billing output of 500 vouchers per day. In times of pressure the operators can turn out a far greater volume of work and with absolute accuracy. Keeping Other Departments Informed In addition to keeping strictly mathematical and mechanical records of the daily charge transactions so that both the custo- mer and the house may be absolutely protected, certain other im- portant matters must be considered. The credit and the collection departments must be provided at all times with an accurate record of the condition of the customers' accounts. This record must show the total amount purchased, the total amount owing, the amount of cash paid, and the merchandise credits. The form in which the information is to be carried in the collection department has already been referred to in the chapter on collections. This information emanates from the bookkeeping department, and if the source of the stream is fouled, disaster follows all along its course. There are, there- fore, some matters not strictly relating to bookkeeping pro- cedure which are to be taken into consideration. They are as follows : I. Information for the Credit Department. The method of supplying the credit office with information varies neces- sarily with the location of that department and the bookkeeping office. If the two offices are side by side, the problem is simple ; but it is more difficult if they are removed a considerable dis- tance from each other, as is frequently the case, the credit department being usually as low down in the store as is practic- BOOKKEEPING DEPARTMENT METHODS 189 able, for the convenience of customers, and the bookkeeping office being on one of the higher floors where space is less valuable. One of the best arrangements for connecting the two of- fices where they are removed from each other is by means of pneumatic tubes. The tubes at the bookkeeping end are in the center of the office, and a girl sits on a raised platform at the terminal of the tubes to attend to all papers coming up. From her stand overhead a wire runs to each bookkeeper's desk, and as soon as a request for information is received through the tube from the credit department, the girl dispatches it along the wire to the bookkeeper concerned. The bookkeeper fills out the information blank, returns it over the wire to the girl on the platform, who sends it down the pneumatic tube to the credit department. Three minutes is allowed to complete the whole process and is rarely exceeded except in times of great pressure, as at Christmas. In operating this system urgent requests from the credit de- partment take precedence over any other work. These urgent requests are written on colored slips especially designed for the purpose and receive instant attention. Other requests are placed on white slips and are dealt with in the ordinary course of business. The colored slip is used either when a customer is waiting for information at the credit department or when a credit man needs information to decide whether or not to O K a charge. The slip shows the name and address and account number of the customer, the amount he owes at that date (not at the end of the preceding month), and the age of the account. In a separate space the amount of the last payment and the highest amount the customer has at any time owed are given. 2. Overlindts. Overlimits are reported daily by the book- keeping to the credit department on a form designed for the purpose. The bookkeepers enter the name, address, and ac- count number of the customer as they do their posting, and igo THE RETAIL CHARGE ACCOUNT indicate the limit and the amount owing. These sheets are sent to the credit department each afternoon after the posting for the day is completed. Should a return of merchandise or a cash payment bring an account reported as being over its limit, down to the limit, or under, the credit man is advised of the fact on the same form in red ink. Upon receipt of these sheets (a separate sheet is made for each letter of the alphabet) the credit man determines whether or not he wishes to change the limit or put a stop mark on the account. If he does, he indicates the change on the sheet and sends it back to the bookkeeping office. At the same time he circulates a memorandum to the same effect among the various authorizing stations. 3. Collections. The method of giving mformation to the collection department is as follows : No attempt is made to grant the credit and collection departments information concerning accounts that remain under the limit and are paid promptly month by month. How- ever the credit department is advised, as already stated, when accounts exceed, their limit, and the collection department when accounts are not paid when due. The method of keeping the collection department advised is to make a collection register. Blank sheets are sent up from the collection to the bookkeeping department immediately after the conclusion of each month, and, starting on the tenth of the month, bookkeepers enter on these collection register sheets the names, addresses, amounts, and age of the accounts not paid by that time. For instance, if an account is six months in arrears the collection register shows the net amounts purchased during each of those six months and the total owed. The sheets are sent to the collection department as fast as they are filled out by the bookkeeping department, a certain number being sent down each day. It usually takes from the tenth to the fourteenth or fifteenth of the month to complete BOOKKEEPING DEPARTMENT METHODS I9I this work. Upon receipt of the register sheets the collection de- partment determines whether or not to send a statement to the customers or to write them. This work is done directly from the collection register sheet, the action taken being noted on the sheets which are then filed in alphabetical order by ledgers in the collection register binder kept in the collection depart- ment for permanent reference. 4. Special Suspense Accounts. It sometimes happens that certain items charged to a customer are disputed by him and that the matter cannot be handled by the ordinary adjustment machinery of the store. As the adjustment of such items will take considerable time, it is advisable to transfer them to Special Suspense account so as to avoid the necessity of starting a customer's bill each month with an item of "account rendered" which it is known cannot be cleared up for some time. In this way the appearance of dunning a customer for the item during the time its adjustment is pending is avoided. The same procedure can be followed to advantage in con- nection with balances owed by deceased customers which are to be paid out of their estates. In a case of this kind the widow can continue purchasing through the regular account without being bothered with an account rendered each month which cannot be paid until the estate is settled. Whatever system is installed to connect the credit and collection departments with the bookkeeping department the management must be prepared to supply the head of the book- keeping department with intelligent help and pay them at a rate that will enable them to continue in the employ of the house uninterruptedly and without having one eye and one ear open for some other job offering a dollar more. The longer a mechanical bookkeeper remains with the store the more valua- ble she becomes, not only because of the greater amount of work she can turn out but also because of the fewer errors she makes. 192 THE RETAIL CHARGE ACCOUNT Credit Manager as Head of Bookkeeping Department It is generally agreed that to obtain the best results the bookkeeping department should be under the jurisdiction of the credit manager, for too frequently all the intelligent effort ex- pended in the opening of accounts and the establishing of charge business is completely negatived by miserable work on the part of the bookkeeping department, the head of which may be responsible to some other member of the firm who does not appreciate the amount of business that is being lost by having the whole scheme of bookkeeping records inaccurately and slovenly kept. Customers are, of course, entitled to a neat appearing bill on which their names and addresses are correctly given, the various items purchased during the month are properly listed both as to name and amount, credit given for merchandise returned and pa)mients made, and the net total properly ex- tended. Too much time and care cannot be devoted to this very important phase of the charge business. Any expense that may be incurred by the manager in installing the proper system is money well spent — an investment which will show ample returns. CHAPTER XIII RETURNED GOODS EVIL AND DISCOUNT POLICY Abuse of the Return Privilege "I wish to return this veil; it is not satisfactory." "You understand, madam, that that is one of those articles which cannot be accepted for return because of sanitary reasons." "I don't care anything about that at all. Here is the veil; you can credit it or not. If not, I shall close my account." "I am very sorry that I cannot take it back. However, I will pass a credit to your account for the amount." So suiting the action to the word, this enterprising manager took a match from his pocket, lit the offending veil, and held it on the end of his pencil until it was entirely consumed. Then he made out a credit memorandum allowing the cost of the veil. The customer stormed out of the shop, never to return. The popularity of that particular shop simply boomed, how- ever, when it became known that it would stand up for a well-established principle in the trade. This story may or may not be a business fiction, but underlying the humor of it is a problem that has caused store managers many anxious moments and even now has not reached a final settlement, although conditions have vastly improved during the past few years. Prior to 1914 there was absolutely no general rule relative to the time limit upon the return of merchandise. Customers returned their purchases at any time and in any manner. Dur- ing that year some of the leading merchants of the country 13 193 194 THE RETAIL CHARGE ACCOUNT conceived the idea of educating the pubHc to a seven-day limitation for the return of merchandise. Strange to relate, the plan has been generally accepted by the buying public and it has worked fairly successfully. The pre-war condition in the mercantile world regarding the return of goods by customers was simply appalling. It was a veritable thorn in the side of every sales or merchandise manager in the country. It became an evil of such alarming extent that something had to be done to combat it. Change Since the War Eventually, after a great deal of work, committees were appointed from every line of trade for the purpose of formulat- ing rules, listing articles of merchandise that were not under any circumstances returnable, and recommending the placing of a time limit of three days within which all goods would have to be returned. This measure eventually received the approval of the Economy Board of the National Council of Defense. An educational campaign was started, literature of one sort or another was distributed, and the buying public gradually came to accept and practice the suggested changes. In a rather remarkably short time reports came to the national committee showing a reduction of nearly 60 per cent in the merchandise returned. The following list of recommendations, which is typical, shows how a large middle western city handled the question. Regarding Returned Goods Recommendations of the Retail Merchants Board The Chamber of Commerce The following recommendations of the Retail Merchants Board, regulating the acceptance of returned goods, are again referred to the buying public of by the merchants. They ask the con- tinuance of that co-operation which has made it possible for them RETURNED GOODS EVIL AND DISCOUNT POLICY 195 to put into effect these regulations which are of benefit in every way to every one in the community. I. Non-Returnable Articles The following articles for legal, sanitary or other reasons, cannot be accepted for return : (a) Bedding and mattresses. (b) Garments that have been altered for the purchaser. (c) Shoes which have been altered. (d) Combs, hair brushes and tooth brushes. (e) Hair goods, hair ornaments and veils. (f) Rubber goods sundries. (g) Women's hats which have been made specially to the customer's order, or which have been worn. (h) All goods cut from the piece at the request of the customer, (i) All merchandise which has been made to order or specially ordered and which is not regularly carried in stock. II. Returnable Articles Any article of merchandise, which for some good reason is to be returned to a store, must be returned within a reasonable time — two business days. III. Condition — Sales Checks (a) No article will be accepted for return unless it is in its original condition. (b) No merchandise of any kind which has been used will be accepted for return. (c) The sales check must accompany all returned merchandise. IV. Gifts (a) Gifts of all kinds (Christmas, wedding, birthday, etc.), if returned, will be accepted only in exchange for other merchandise and will not be credited on the account of the person receiving the gift. (b) Gifts may be returned for exchange at current prices only. V. Unjust Demands The names of all customers who continually make unjust claims upon the merchants or who return C.O.D. merchandise will be re- ported to a central clearing house. Such information will eventually become part of the credit information supplied every merchant. 196 THE RETAIL CHARGE ACCOUNT VI. Deposits on "Will Call" Purchases A deposit of not less than twenty-five per cent of the purchase price will be required on all "will call" purchases. VII. Non-Returnable Tags Uniform tags are supplied to the merchants by the Board. If this tag is removed from the article on which it has been placed that article will not be accepted for return. Any article bought with the privilege of return will be considered sold and not returnable if the merchant is not advised within two business days that it is to be returned. Retail Merchants Board The Chamber of Commerce Notwithstanding the fact that the three-day rule has amply demonstrated its value, there are still stores which have extended the privilege of returning articles to a seven-day period, or even longer, not living up to the agreement which was so generally accepted as thoroughly sound and practicable. Customers Who Return Goods Why are goods returned by customers, and what are the abuses which have crept into their habits that make necessary such strict supervision ? Here are some typical cases : The customer who orders an expensive dress or wrap sent "special" and wears it at the opera or some other approaching function, and then after the function is over requests that a call be made for the article, stating that her husband does not like it or that she intends to make another selection. The woman who goes out shopping with a friend on whom she wishes to make an "impression" and orders merchandise charged and sent to her home, or even sent C. O. D., without having the slightest intention of keeping it. The customer who orders expensive and exclusive articles of wearing apparel sent to her home where she has her own dressmaker copy the designs. When that little job is done the goods are returned, often without any explanation whatsoever. RETURNED GOODS EVIL AND DISCOUNT POLICY 197 The woman whose husband is a manufacturer in the same line and has his designer copy the article for use in his own business. The woman who simply cannot make up her mind as to her selections. This class of buyer should be educated by salespersons to make a positive decision at the time of purchase. Store managers cannot blame the undecided customer. An intelligent salesperson, however, can control such a situation and save money for her house while earning the everlasting gratitude of the customer who will come to lean more and more on her judgment and her sense of values. Effect of Returned Merchandise What does this return of merchandise mean to the mer- chant? It means that all goods returned by the customer are virtually second-hand articles and they are generally sold at a sacrifice. Yard goods become remnants which are usually very difficult to dispose of, and if moved over the counter at all, it is at a great sacrifice in price. Waists, blouses, dresses, suits, and similar wares suffer in a slightly different manner. Dainty in their make-up for the most part, they get mussed from handling and require thorough overhauling and pressing. More important than this, however, is the fact that while the goods have been out of the building some other customer might have bought the same article and kept it. Cost of handling, waste from deterioration of material and supplies, and loss of time are among the evils accompanying such transactions. The goods first must be sold, then wrapped and delivered. After this, the process has to be reversed and the machinery of a call check put in motion. Sometimes the call is not issued at once and the customer telephones to know why her request has not received immediate attention. More time of more clerks is taken up somewhere along the line, until finally the goods get back to the counter of the 198 THE RETAIL CHARGE ACCOUNT store. Credit memo, either cash or charge, must be issued and the article Hsted in the stock. Commissions are reduced and the clerk's "book" value suffers loss. The article is put up for sale again and the original process must be repeated simply because some woman could not or would not make up her mind. Good Reasons for Returning Goods Every merchant wants every transaction to be absolutely sat- isfactory so far as his customers are concerned, and buyers and sellers have come to expect certain courtesies of each other which have proved themselves to be wise and reasonable customs. Sometimes goods will not look the same at home as in the artificial lights of the shop ; often articles will not fit correctly the next day, notably gloves and shoes; defects, unseen at the time of purchase, make their presence known after a more careful examination; these and numerous other reasons are the occasion for the return of many articles. These, however, are legitimate, and no merchant would think for a moment of objecting to them. He should keep track of all such complaints and analyze them to try if possible to prevent their recurrence. By way of contrast, however, is the class of buyers typified by the customer of a certain store, who was a heavy buyer and a remarkably prompt payer. A three-year analysis of her account, however, developed the fact that during that time her merchandise credits amounted to 53 per cent of her purchases. As she paid each month into the store from $150 to $300, the amount looked quite impressive. But the value of the account dropped tremendously when the acid test of costs was applied. A carefully worded letter to the offending lady brought forth the following explanation : I live with my four daughters and buy quite extensively in your waist and suit departments. The sales ladies there have come to know our wants and as soon as anything particularly desirable appears they send out to me two or three of each in RETURNED GOODS EVIL AND DISCOUNT POLICY 199 our different sizes for approvaL Sometimes we keep them or some of them, but very often we send them all back. At no time have we ever asked them to send anything out on approval. It would be just as easy for us to do our buying in the store in- stead of at our home, and if you prefer it that way, we shall be most glad to comply with your wishes. She did so, and bought at the store instead of at home. The charge credits dropped at once to a neghgible figure, and the cash continued to be as high as formerly, if not a little higher. The point of the incident is that the fauh lay with the mer- chant's own salesforce, whose overeagerness to effect sales was the occasion of unneccessary and expensive returns. Too frequently salesmen "oversell" their customers, who, in their desire to stem the tide of sales verbiage turned loose on them, allow the goods to be sent home, knowing full well that they will send the goods back to the store in a day or so. The following table shows the percentages of returns for all classes of sales — charge, cash, and C. O. D.— for the months of January, February, and March, 1920 and 1921, as reported by ten representative houses. The proportion of charge sales to total business is also given. The figures for the returns in some cases take on a different meaning when this percentage is taken into consideration. Table Showing Percentages of Returns for All Classes of Sales %Total Returns to Total Sales Percentage Returns On % Charge 'Cash Charge CO 1. D. to To*al Business 1921- -1920 I92I' -1920 1921- -1920 1921- 1920 Business Women's Wear 10.6 9.7 S.oo 4-7 16.7 IS. 3 16.2 9.1 45 '■ 6.5 7.4 3.1 2.2 II. 6 10.00 11.4 12.9 28 12.10 11.33 5-52 S.41 15.02 14.38 14.97 10.65 60 " 8.S 7.42 4.1 4-7 10.02 9.3 10.08 5-9 58 " 4- 5-4 17.8 10.8 II. 7 9.2 50 Dept. Store. . 4-I9 4-71 1.6s 2.03 9.58 95 9.4 11.27 15 "... . . 5-7 5-90 6.1 1.7 12.2 II. 7 24.9 28.2 30 "... . . 8.2 2.4 14-5 17.00 42 "... . . 13-2 13.00 4.6 4-7 15. 5 15. 1 11.6 10. 1 70 Shoes . . 9-5 9.2 4-3 4-3 5.2 5-2 50 Men's Wear. 4.6 3.83 ii.g6 II. 4 63 China Wear . 8.2 8.9 4.2 4.8 15.8 IS. I 12.2 II. 2 20 200 THE RETAIL CHARGE ACCOUNT Evils of Returned Goods Privilege It is obvious, therefore, that there is a direct relation between the high cost of living and the abuse of the privilege of returning merchandise because every merchant must protect himself by adding enough to the selling price of his wares to cover the loss incurred because of this evil. All reforms to remedy such conditions must come from the purchasers themselves. If patrons would "buy only what they want and keep what they buy," the result would be a great benefit to the community. The credit man is vitally interested in this subject, for he can very often assist in educating the customer in the proper methods. It has become one of his duties to help reduce so far as possible the large amount of returns. While all store people recognize the axiom, "the customer, right or wrong, is always right," and is to be satis- fied at all costs, it is obviously not just to the merchant to permit the buyer uncontrolled lee-way. In justice to the buying public it must be said they no doubt desire the elimination of the evil of unfair return of mer- chandise as well as the merchant, as is evidenced by their co-operation in this matter within the past few years. While decrying the abuse of the return goods privilege, one should never lose sight of the value of that privilege in relieving customers of the feeling that they have been oversold. The abstract value of this privilege has not been sufficiently considered, and if it could be measured it perhaps would be found to -be worth all it costs. Students of national and of retail business particularly state that these enterprises have prospered and grown because of the privilege granted customers of returning goods bought hastily or unnecessarily. But the most excellent thing in the world may be spoiled by abuse. Merchants should strive for the golden mean — which "mean" will literally be golden for them — and adopt a liberal RETURNED GOODS EVIL AND DISCOUNT POLICY 201 policy in this question of returns coupled with a close scrutiny of their accounts to guard against customers who are liable to abuse the privilege. Such a policy will be both to the public's interest and redound as well to the material advantage of the merchants. The public must be enlightened and shown the necessity of co-operation in the elimination of the return goods evil. The merchant should — always from the viewpoint of the purchaser — reveal the dire consequences of this abuse, and if his revelation is well directed and is in the right spirit the merchant may be absolutely certain that he is doing everything possible to remedy the difficulty. Guarding Against Abuse of the Returned Goods Privilege The merchant should realize that a just liberality in the matter of sending goods out on approval is a legitimate and profitable form of business. He must, of course, try to prevent abuse, but he must also frankly admit that the practice has its advantages and is the best kind of advertising as well as a powerful creator of good-will. Indeed, the merchant ought to understand that nothing has so endeared the retailer in the hearts of his female patrons as his liberality in exchanges and refunds. But with these privileges there must be a careful guarding against the unscrupulous and careless customer. That class of customers can be quickly curbed by co-operative methods among merchants in reporting to each other abuses of the privilege. Where a clearance bureau is in operation informa- tion on this point should become as essential a part of the individual's credit report as any fact bearing on his habits of pay and financial condition. Where it can be definitely shown that a given buyer has been in the habit of making unfair or unjust claims in other establishments, it is a simple matter to handle his case. There should be a systematic periodical review of all ac- 202 THE RETAIL CHARGE ACCOUNT counts to discover those which show an abnormal return rate. The matter of excessive returns should at once be taken up with the offending customer, frankly and fully, and without doubt a material improvement can immediately be effected. As in the instance already mentioned in which the customer returned more than half of her purchases, very serious situa- tions are often brought to light in which it will be found that the fault rests with the establishment and not with the patron. Should the customer decline to promise to men4 her habits there should be no hesitancy in withdrawing the convenience of an account until such time as the customer may be expected to buy on the basis of the store's requirements and not of her unreasonable and unprofitable exactions. Discount Policy The discount policy is dependent largely on the attitude of each individual house. One of the problems now confronting retail merchants of the country is how to abolish the oldtime custom of allowing discounts to certain classes of retail customers without losing a large portion, if not all, of their patronage. Any advantage that might be gained by this policy of allow- ing discounts is but temporary and really illusory. Very soon the favored classes begin to approach other merchants with the same plea for discounts and for the sake of self-preserva- tion the merchants thus approached must yield to the demand, with the result that discount-giving becomes general. Mer- chants gain no continued increment of business by granting discounts, but all alike have to bear the resulting loss of profit on such sales. Arguments Against Discount-Giving Why should the retailer give any discount at all ? He sells to the ultimate consumer at a price which is supposed to be as RETURNED GOODS EVIL AND DISCOUNT POLICY 203 low as good business permits. If any of his customers are engaged in pursuits in which they hope to make a profit for themselves either by reselling the article they buy of the retailer at a higher price or by making it up into some other article, they should base their own price on what the article costs them or else buy of the wholesaler whose business it is to sell to one in business. Any woman with a sewing machine might just as reasona- bly demand discount as a dressmaker or because she has a sister in the millinery business — and it is surprising to note how many women have sisters in the millinery business — and between these two methods of discount-seeking might get discount on almost everything she needed. Why should school teachers, policemen, firemen, or other city employees receive a discount ? As a matter of fact, most of them ought to be taxed an additional 6 or 10 per cent for the length of time they take to pay their bills. Even the clergy can hardly claim a discount with any degree of fairness. For the most part on a salary basis, they should be able to pay for their purchases at the same rate as other customers. Perhaps the custom is an outgrowth of former days, when the preacher had to make his living in part by depending on the hospitality of his congregation — by having Sunday dinners in turn with such of his flock as could afford it and taking food or other merchandise in part payment for his services. Hence when it came to be an absolute cash purchase, it was very natural to "shave off" a little for the domine. Times have changed, however, and stores as well as railroads have come to feel that he should pay the regular price like anyone else. The Purchasing Agent What shall not be said of the purchasing agent? What is a purchasing agent as known in the retail trade ? Well, this 204 THE RETAIL CHARGE ACCOUNT is what she does, at any rate. She has a mail order from her customer to buy for her a certain article, say, a hat. As the "P. A." has shopping cards at all the principal shops, the hat is purchased from the lowest bidder. When the purchase is made the hat is wrapped carefully and shipped to Palm Beach, Los Angeles, or maybe to Honolulu, at the store's expense. The item is charged to the P. A.'s account, who in turn charges it to her customer's ac- count. When does the store get paid? Perhaps in two or three months, or longer, along comes the check, less discount. What has happened? The store has financed that particular P. A. for the length of time it has taken her to pay her bill, besides having given her the use of the merchandise and of the services of the advertising, selling, delivery, billing and book- keeping departments, and paying her something to boot. The purchasing agent is supposed to bring the stores busi- ness from sources which she alone can control, and super- ficially it would seem good policy for a store to pay 6 or even lo per cent to enjoy that business which would otherwise be lost to it. It has been conclusively proved, however, that in the majority of cases it is chiefly for personal reasons that customers allow agents to buy for them, believing that the agents can make a more professional selection for them, especially so if the customers live out of town. Discount Associations There are various forms of agencies and associations pur- porting to be organizations in the interest of their member- ships, running usually into the thousands, which receive dis- counts. But even the most cursory investigation will disclose that they are purely commercial enterprises and are kept alive for the interest of just a few insiders who live on the discounts, for which the merchant receives no adequate compensation. In this class can be included a number of the so-called RETURNED GOODS EVIL AND DISCOUNT POLICY 205 "army and navy associations" and "civic bureaus." It is true that in the case of some of these organizations the entire dis- count received, less a very nominal deduction for overhead expenses, is enjoyed by the members. Generally, however, only one-half of the discount is distributed among the members, the other half being retained by the parasitical profit-gatherers, in whose sole interest the scheme has been concocted and is being conducted. Trade and export discounts fall under much the same classification as purchasing agents' discounts. There is no legitimate excuse for them either. Where a purchase is made in sufficient quantity to justify a special price, a figure on the whole lot should be named, depending upon the profit on the particular article and the difficulty with which it otherwise might be sold. Some merchants feel that a dressmaker should receive a discount on the materials used in making a dress or a milliner on the materials used in making a hat. But as clearly as they are not entitled to any discount on other articles of mer- chandise, just as clearly are they not entitled to a discount on materials or articles they are to use, and this for the general reason that retail transactions should be made at but one price. Discount to Employees There is one type of discount which is proper and just and which in many cases could be enlarged to the store's advantage. This is the discount to employees. Some merchants have gone a great deal further than others in this respect, having sensed the importance of such a policy. They give their employees goods at actual gross cost, or at a discount of 20 per cent or even more, while others, less wise, have limited the discount to 6 or perhaps 10 per cent. Others carefully grade the discount granted to employees, allowing a moderate reduction on general purchases, but per- 206 THE RETAIL CHARGE ACCOUNT mitting the purchase of wearing apparel at cost, particularly when bought for business wear. Others have scaled the discount on the basis of length of employment, thus com- pensating the older employees for their longer service. One merchant grants no discounts directly to his employees but makes them preferential sales, allowing them to effect sub- stantial savings by taking advantage of special offerings intended for their particular benefit. There is a strong feeling, however, that inasmuch as the employees contribute to the financial success of the merchant, some of his benefits should be passed along to them, quite apart from any profit-sharing or bonus plans which may be in operation. Remedy for Discount Evil The remedy for the discount evil really resolves itself into the simple matter of selling only at one price, so that every one who comes to the store to buy may feel sure that the prices paid will be the same to all regardless of race, creed, color, or any other distinction. CHAPTER XIV BUSINESS-BUILDING Broader View of Credit Man's Function "No, they cannot charge that. There goes another two hours of an efficient salesperson's time, and all because the credit department is nothing but a loser of business." This quotation may be taken as reflecting the general con- ception of the popular mind regarding the credit man and his department — a necessary evil or at best simply a guardian of the concern's capital, or a watch-dog of accounts. Credit men who receive such doubtful compliments know from personal experience how utterly baseless such remarks are. The credit man is looked upon as a non-producer. Such a view of his function is absurd. It shows an utter lack of appreciation of the work and possibilities of the credit depart- ment. But for that feeling the credit man himself is largely to blame. The credit man is a producer. He can well be compared with the banker, merchandise buyer, and even the merchandise sales manager himself. It is the credit manager who makes the final decision whether or not a charge sale is to be accepted; he can, there- fore, make or lose business. As a business-builder he must try wherever possible to make a sale; and if sometimes it is necessary to turn one down, he rnust do this in a way which will conserve the good-will of the house. As has been well said, "The credit department directing its efforts in the proper channel can turn credits into a con- structive force for larger and better business instead of being a negative force, and can assume a most important position 207 208 THE RETAIL CHARGE ACCOUNT and become a potent factor in the expansion of any organiza- tion." For this, however, the credit man must have a thorough comprehension of his own work, an understanding of mer- chandising and advertising, and a detailed knowledge and interest in every phase of the business. For instance, he should be interested in the service end of the store, for he should be anxious to see that his charge patrons enjoy intelligent treat- ment and that their grievances are handled properly. Corresponding Ability Necessary It will undoubtedly be admitted that the credit man is in the best position to develop the charge customer. Not only is the opening of the account the affair of the credit depart- ment, but ever afterwards it is the credit department that can keep in closest touch with the charge patron. Therefore it is absolutely necessary that the credit man and his assistants be able correspondents; that they have a working knowledge of business psychology, particularly as applied to correspondence. With this advantage there is practically no limit to the growth of the credit man. It is primarily in his credit, collection, and adjustment let- ters that the credit man shows his ability or, unfortunately, as so often is the case, his lack of it. He ought to be certain that every letter which leaves the department of accounts car- ries with it a message of service, the story that the department of accounts exists for the patron's convenience and pleasure. Developing Good-Will Credit information can best be acquired, collections can most easily be effected, and adjustments can most satisfactorily be made, only when they are based on a foundation of good- will. A letter can be dignified and yet be insistent. It should sometimes be apologetic, but no correspondent should ever for- BUSINESS-BUILDING 209 get that his particular purpose at the time of writing a letter is not the sole reason for the letter ; he is supposed in every con- tact with the customer to make for good-will and confidence in the house. This is hardly appreciated by those who use the "Dictated but not read" type of letters and carelessly drafted form letters. Letters sent to customers are the perma- nent representatives of the house and should mirror its policy. There are houses which lavish thousands of dollars on the physical appearance of their shops in the desire to create good-will and which have a broad and understanding mer- chandizing and business policy; yet these same houses send out letters grammatically incorrect, illogical, inconsistent, and containing angry threats — letters of the type which do nothing but destroy confidence and cause loss of business. Such in- stances explain why the. credit man is not ordinarily looked upon as a profit-maker. His duty is regarded as simply to conserve the earnings' of the business by the wise administra- tion of the affairs of his department and his value to the firm is usually measured by that standard. However, no credit man reaches the point of highest efficiency — of greatest worth to himself and his concern — until he is able not only to keep losses from bad debts at a minimum, but also by intelligent and systematic effort to build up good-will and encourage the opening of new accounts on his books. Inactive Accounts The credit man should be very much interested in increas- ing the charge patronage and keeping constantly in touch with customers whether they purchase or not. Every active name on his account list — and an account should be considered active until a purchase has not been made for at least a year — receives monthly bills. If there are no items to go on the bill a sales message should be written on it and mailed to the 14 210 THE RETAIL CHARGE ACCOUNT customer. Such monthly sales messages have proved suc- cessful builders of good-will. He should also reach his inactive customers from time to time. He should go through his files every month and transfer names from the active to the inactive list, and at frequent in- tervals he should send out letters to those listed as inactive, asking why the account is not used. The letters should, of course, not be tearful pleas for new business but simply mes- sages of good-will and friendship. In this manner the credit man can reduce the business losses resulting from the constant shifting of trade when customers become undesirable for various reasons or transfer their patronge to competitors. It is an unpardonable sin in a big organization to neglect old customers, and yet it is very common. Another great fault is for the accounting department to miss the opportunities presenting themselves hourly for securing new business. The credit man who wants to be considered a business- builder must do something more than pass on credit and col- lection accounts — he must add to the functions of the credit department. He has the opportunity not only to cement the ties of friendship, good-will, and confidence between the house and its charge customers, but also to secure new business by adding to the accounts list. Soliciting Accounts A charge account is of direct benefit to the patron because it is a decided convenience ; it is also of benefit to the establish- ment because it tends to make a complete customer, that is, one who in time will buy in every department. The charge service tends to form' a more intimate contact between the customer and the store, binding her more closely to the store and helping to establish the kind of good-will which is an invaluable asset. Reliable statistics show that the amount of the average BUSINESS-BUILDING 211 charge transaction is more than three times that of the average cash transaction. The cost of offering and handhng the charge accommodation is almost, if not altogether, offset by the larger profits and a decreased cost of sales and delivery. The sermonizing indulged in by some of our large stores in their advertisements about the savings effected by a cash house is in reality expensive rhetoric. It is not venturing too far to say that if these stores could efface the memory of their preach- ments they would adopt the charge basis. As a matter of fact some plans involving a combination of an advance cash payment with a special deposit account in the bank are nothing more or less than veiled efforts to secure charge business. The criticism generally directed against the policy of solicit- ing accounts is not so much against the solicitation itself as against the indiscriminate manner in which charge privileges are offered, an abuse that should be frowned upon. In spite of the ease with which this objection may be overcome, some stores refrain from soliciting accounts. Others solicit only with an apology or in a half-hearted manner and condemn the practice if the results are not up to expectations. Some stores do not give credit. They do, however, grant to customers of approved financial responsibility the convenience of making 'their purchases during the month, rendering on the first of the following month an itemized bill, which is due and payable on presentation. Among the conveniences of the charge account are those of being able to shop quickly without waiting for change or arranging for C. O. D. deliveries or any of the^other details incidental to purchasing on a strictly cash basis. Moreover, merchandise returned for credit or any other adjustment neces- sary on purchases can be attended to with greater facility and promptness. In the type of stores last mentioned the credit idea is not mentioned at all to the customer, and using the 212 THE RETAIL CHARGE ACCOUNT charge account to get long-time credit is nothing short o£ an abuse of the charge privilege. Mailing Lists of Prospective Customers From what sources are names to be gathered in building up a mailing list of prospective charge customers ? This question requires a great deal of thought, for the success of the house depends on the correct answer to it. The list should be more than a number of names compiled more or less at random; it should include only individuals who have use for the store and the store's goods; who can comfortably and conveniently afford to buy there and can therefore be influenced by a busi- ness appeal to become a customer. In building up such a list the house must decide on the financial position of desirable prospects. This will naturally vary with each particular house. Patrons enjoying incomes of $4,000 a year and upwards are the most desirable type. Those with smaller incomes usually seek credit on their purchases and endanger the entire charge account system. It is often difficult to establish a prospect's income, but there are agencies and circumstances which help. For instance, in the larger cities rating-books are issued by retail commercial agencies, against whose lists the name of every prospect can be checked. Those whose ratings are unfavorable are dis- " carded. Those concerning whom there is nothing unfavorable and who live in the better sections of the city are accepted. Whatever prejudices may exist against this form of busi- ness-building it is worth while to consider how the roster of charge patronage may be enlarged, how good-will and friend- ship may be built in the face of serious obstacles and at the same time maintain the dignity of a charge account, and how the customer may be brought to consider the account as a shop- ping convenience only and not as an accommodation granted, making the credit idea simply incidental to the transaction. BUSINESS-BUILDING 213 Of the many sources from which prospects' names may be gathered the following can be considered as typical : 1. Cash and C. O. D. Patronage Customers in this class are very susceptible to the appeal of the store's department of accounts because they already know the store and appreciate its desire to give efficient service. Desirable names can be selected from the drivers' route sheets according to the better class neighborhoods. Then again the department heads can be asked to keep a record of the larger sales of their known customers and give the names to the de- partment of accounts for prospects. Also, a salesperson or a floor manager is often personally acquainted with a cash cus- tomer, who makes a good subject for solicitation because of the personal element that can be introduced into the letter sent him. 2. Directories (a) The books of the various agencies are often used as prospect lists. The rating books are used time and time again with fairly good results. Of course, the people thus indexed receive much similar literature from other quarters. (b) There is a directory which is conveniently arranged in better neighborhood sections, and a shop can select a neigh- borhood most advantageous to itself and solicit among such names. The person who is listed in this directory need not necessarily be rated, for such a person's income almost always falls in the desired class. (c) In order to solicit people living in the suburbs the best source for prospects is the telephone directory. People of any standing at all have a telephone, and it is certain that 95 per cent of their addresses are correct. (d) Other agency books which may be used are the city directory, "Directory of Directors," the "Stock Exchange Di- 214 THE RETAIL CHARGE ACCOUNT rectory," bank directories, college bulletins containing lists of professors, trustees, and students, and the various engiiieering, medical, and other scientific periodicals. The last, the pro- fessional class, are found very susceptible to solicitation and for the most part are just within the $4,000 class. 3. Newspapers The best class of prospects are those who are in the market looking for the kind of merchandise the shop carries. If they receive proper and efficient service they can be made lifelong friends of that particular store. Such prospects can be found daily in the newspapers, the various periodicals, and magazines. Those publications in New York City which are typical of the kind that can be used for prospect purposes are the New York Times, Bronx Home News, the Harlem Home News, County Review of Long Island, Brooklyn Daily Eagle, etc. From newspapers and magazines of this character which are pub- lished in every important city one can get lists of weddings, engagements, births, deaths, society notes, local social festivi- ties, etc. These should be carefully selected and appropriate letters sent. From this source can be culled notices of re- movals and purchases of residences which result in good pros- pects. Information regarding construction of new buildings and contemplated purchases or sales of real estate are furnished by agencies in some cities for the benefit of builders and mate- rial supply houses. These same lists may be used to advantage in furnishing additional names for the prospect list. 4. Customers Who Pay by Check Cash customers who offer checks in payment of merchan- dise are also a fertile field for direct solicitation efforts. A record of these transactions can easily be obtained from the controlling cashier's office, and the latter can be urged to co- BUSINESS-BUILDING 215 operate with the credit department by listing the signatures and banks of the larger city checks and hand in their makers as prospects. 5. Inactive Accounts Another important list which should not be overlooked is that of the record of all the inactive charge customers and all those who apply for accounts and never use them. Letters should be written inquiring the cause of estrangement and very often correspondence will result which will make close friends for the shop. A prominent credit manager stated this truth : "One of the largest fields for the development and continued growth of the charge business, and possibly the one most neg- lected in many houses, is the ever-increasing list of inactive accounts. Inactive for many reasons which, when investigated, reveal many interesting sidelights into the conduct of a store." A writer for a prominent retail trade paper makes the fol- lowing observations, which are very much to the point : Files filled with inactive accounts seem in some inarticulate way to accuse the merchant of some breach of faith in the rela- tion of friendship which must originally have existed as a reason for the account. They seem like old friends with whom one has grown out of touch and suggest that some word of com- munication might renew the relationship. Some merchants declare that form letters sent to customers represented by these accounts bring in either no return at all or sometimes even a resentment of the effort to bring them into touch again. Is not that possibly because the letter itself may show too plainly the commercial reasons for the desire on the part of the merchant to renew the relation with the customer? If a letter translates itself too easily into terms of money to be received, rather than into terms of service to be rendered, it may quite easily arouse in the customer a reaction either of indifference or even of resentment. No bookkeeping department likes to pile up its folio numbers 2l6 THE RETAIL CHARGE ACCOUNT into the tens of thousands when by removing from the files those numbers which are inactive they may be kept within range. And so the inactive folder is put into retirement and even the number by which it was designated comes to designate some newly acquired customer who is as yet a more frequent purchaser. Not all firms make an effort at the time when the account is put on the retired list to learn, if possible, the reason for the falling off of the enthusiasm of the purchaser. Often a customer may have received some slight rebuff in the service of the house, which may show its reaction in the lack of further purchases. Sometimes an article of merchan- dise may prove not at all what the customer expected and with- out ''making any trouble about it" she shows her displeasure simply by doing her purchasing elsewhere. Obviously this is to the disadvantage both of the customer and of the retailer. For if a customer has at any time gone to the trouble of opening an account there is some reason for her doing so — either the shop is conveniently located for her pur- chases or she is especially attracted to the kinds of merchandise which the house carries — whatever the reason, it may be as- sumed that it is a convenience for her to charge merchandise at this particular store or she would not have taken the trouble to ask for the privilege. If the work of the house has been well done, it seems just a bit ruthless to file away among the "dead" the records of the past business on which one might hope to build up returns for present day and even for future business. Letters carefully written, so carefully as to appear to be per- sonal, do in many instances bring in a return. Letters which to the most casual observation are copies of a form and which are intended not so much to discover the feeling of the customer as to stir up that customer to contribute further dollars to the business may be quite likely to antagonize, particularly if the customer is already somewhat irate. 6. Other Special Sources There are, of course, other special sources from which lists of prospects may be derived. Specially selected lists may be purchased from the various agencies. One firm took the BUSINESS-BUILDING 217 ingenious method of writing to the well-rated firms and banks of the section of the city in which they contemplated canvass- ing and asked them for the names of the people employed by them who received over $4,000 a year, resulting in a set of prospects whose status was positively ascertained. Checking of Mailing List Let us consider the mechanical aspects of solicitation as followed out in the office of a large establishment whose pro- cedure may be considered typical. Every prospect turned in is first indexed on a card which carries all information that can possibly be ascertained about him. All the names are first checked against the master index of accounts in order to make sure there is no account for the prospect. If by chance the ac- NewYobk lb Br«;inrMrr riBM BUSrNESS Annnrs!! nAw*« , . ^ ..p_ , . Annnrss ACCOUNTS WITH Figure 19. Application Card Sent in Solicitation Campaign. (SizesMxsM) count appears on the book, any additional information which may have been obtained is, of course, noted on the customer's reference folder. 2l8 THE RETAIL CHARGE ACCOUNT These names are also checked against the solicitation files, which are arranged alphabetically. If a store is just starting a soliciting campaign, this second step is, of course, unneces- sary, because there is in that case no previous solicitation. Should such a file exist and the name be found in it, the addi- tional information may suggest a new line of approach. The number of names which are then left are checked against the residential and telephone directories, and those which are found in either of these books are solicited. Letters sent to unrated people stress the fact that complete information must be given on the card sent to them (Figure 19) before an account can be arranged. It is surprising how complete the information sent in frequently is. Procedure Automatic Most of the solicitation is automatic. The typists who do this work need not refer these prospect cards to the credit man, as everything is mapped out for them and they know exactly what letters to send to the various classes of prospects. Each typist is provided with a chart which shows clearly the form letters of the various series. This chart also lists form replies. Of course, occasionally a special case will arise, or a customer will reply at length. A specially dictated letter or a special form must then be sent. But that does not happen frequently, and for the most part the work is carried on automatically. When a letter is sent the index card is stamped with the date and is marked with the form symbol of the letter. The index card is boxed ofiF at the top for the day of the week for a period of two weeks. The card is tabbed for the day on which the letter is sent; if no reply has been received within two weeks the card comes up for attention automati- cally. The second letter of the series is then sent, and this continues until a reply is received or until the set is exhausted, when the card is referred to the solicitor for further action. BUSINESS-BUILDING 219 Index cards are always kept in strict alphabetical order and gone over at regular intervals, when special form letters or seasonal greetings may be sent. All of the regular prospects are filed together. When there is a post-office return, or when a prospect declines, the card is stamped and filed back into its original place. However, the cards for the prospects who accept the invitations are filed separately, as there can be no longer any occasion for the solicitor to send letters to that name. The cards for the inac- tive customers are kept separate from the regular prospects for obvious reasons. The cards for post-office returns are put aside to be checked up later in the day in an effort to discover the correct address so that the prospect can be used, if at all possible. Real estate prospect letters which have been returned by the post-office are due-dated ahead for one month. The post-office returns from this class may mean that the prospects have not yet moved into their new residences. These are then solicited again and usually a large number of them are reached, a certain percentage of which send in applications. Handling Replies Several letters or notes are received each day from pros- pects to the effect that they do not desire to open an account. Some of these letters or notes contain nothing but the simple assertion that the prospect does not want an account. Such replies are rather unfortunate, because they leave no room for further correspondence. The card is then marked for the form letter which is sent in such cases. Frequently, however, the prospect, while declining the invitation, makes other state- ments in her letter which call for a note of acknowledgment, or makes a just complaint which requires attention. In an- swering such letters, special forms are devised to cover various cases. If no form can be used, the reply is dictated. 220 THE RETAIL CHARGE ACCOUNT The tab is also removed from these cards and the date is stamped in the space marked "Declined" and the form symbol of the letter sent is noted on the card. When a prospect accepts the invitation, the information card returned by her is given to the chief clerk of the office, who sees to it that an opening letter is sent her as soon as possible — of course, in accordance with credit requirements. Sometimes a letter is sent out to someone who already has an account with the store. As soon as this is discovered an apology form letter is sent immediately. Occasionally a prospect replies to the effect that she does not want an account at present, but will probably have use for one when she returns from the country or from a European tour. In such a case acknowledgment is sent to the customer and the card is due-dated for the time suggested by the pros- pect. The card comes up automatically at that time and a form letter is sent which usually results in an account. It is best to have a separate correspondence file for replies to and from prospects. This will be found very convenient both for the solicitor and the office in general, because it will keep all the soliciting work together and at the same time will not clutter the regular correspondence file with details unim- portant to the office routine. Statistics on Soliciting Work Keeping accurate statistical records of solicitation work is, of course, important. Future campaigns are always laid out in accordance with past experience. Certain letters which may have seemed perfectly proper can be discarded when it is noted that they are not bringing average results. Any direct advertising campaign which does not keep accurate records of its results and does not allow itself to be guided by these re- sults will not be a great success. As the work progresses, a daily record is built up on a card BUSINESS-BUILDING 221 always in plain view on the stenographer's desk. This report consists of the number of each letter sent, the number of re- plies, and the number of new prospects received. The responses of prospects are always credited against the last letter sent, and so are noted on this card. From the daily totals a chart of production is kept. This chart is very interesting, because it shows clearly, at a moment's glance, any trend the solicitation work may be taking. If the trend is downward, immediate investigation is made to ascer- tain the cause and eradicate it; if it is upward, investigation is also made to ascertain the probable cause and to keep that cause effective. Careful study must be made of conditions and trends of popular thought. It is only with this in mind that intelligent revision and substitution in letters can be made. For instance, economy was of secondary importance a short while ago when money was cheap; style, quality, beauty, and even luxurious- ness were the pulling powers of yesterday. Today, due to the good offices of the newspapers and other circumstances, every- one is seeking that which is most economical. Almost within a month the change in letter style had to be effected. One's system must be flexible and one's mind alert to be successful in any direct advertising. Systematic Planning of Campaign Planning for campaign to be conducted on a large scale is also a very important phase of the solicitor's work. Cam- paigns, especially those to be run on a large scale, require a good deal of attention and careful study before they are at- tempted. The work of planning cannot be reduced to a system, as everything depends upon the individual judgment of the man in charge of the work. It might be well to fix in mind the specific purpose of a soliciting campaign, in other words the big idea behind the 222 THE RETAIL CHARGE ACCOUNT letter. It would be a waste of time and money if the purpose of the solicitor was simply to persuade certain women to place their names on his list of charge accounts. The object is to persuade them to use the charge account at the shop. There are a good many instances where this is lost sight of and as a result the efficiency of a charge campaign is often questioned. The soliciting work must be governed by this idea, and it must be followed up when the prospect accepts the invitation to open an account. Feminine Psychology In soliciting charge accounts for a department store or a specialty shop the problem is not primarily a literary one. It is a problem in feminine psychology. For this reason it is necessary to keep in mind certain mental traits peculiar to women and to note particularly those traits inherent in the class of women solicited. There is no such thing as the absolute truth, except in faith, but the following will be found to be true in enough cases to give them as guiding rules. 1. Every woman prefers to be treated as an individual, and it is a mistake to appeal to her as a member of a group or class. She is used to being treated as an individual and leads a very individualistic life, particularly if she belongs to the class of women we are now considering. Therefore the letter must carry a personal appeal and must appear to be personally ad- dressed. 2. A woman is appreciative of an appeal to her judgment and wherever possible such appeal should be made. Although a woman knows and acts by intuition (that greatest develop- ment of the senses and instincts), like all other human beings she usually prides herself on what she thinks she has — good judgment. 3. Psychologists say, and the letter tests prove they are BUSINESS-BUILDING 223 right, that the feminine mind is more susceptible to suggestion than is the mascuhne. Although it should appear that an appeal is made to her judgment, too great stress should not be placed on the arguments and reasoning in the letter. The effec- tiveness of a letter to a woman will depend largely upon what it suggests — not only what it suggests from the words of the letter, but from the physical appearance of the letterhead, envelope, and typography. 4. Another important consideration is that a woman likes ta exercise her esthetic sense more often than a man. It is perhaps this sensitiveness to the beautiful which distinguishes woman from man more than any other trait. Thus while with a man a neat businesslike letter in a businesslike envelope with businesslike typewriting will receive the expected atten- tion, a woman, on the other hand, will appreciate a little refine- ment in the stationery which is used in writing to her. The adoption of different styles of stationery and different kinds of type should be used in all letters to women. For if it is true that the esthetic sense is developed in women generally, it is particularly true of the women of the class to which the letters go. Many of them were pampered by every indulgence in their childhood and live now in the lap of idleness and luxury; they have had every opportunity to develop their esthetic sense and to gratify their love of the beautiful. It is therefore to be expected that they will not be favorably impressed with any letter, however skilfully written, which comes to them on stationery far below the type which they have been accustomed to receiving. 5. Another point, — women are more susceptible than meh to the testimony of authority. For instance, in selling a suit of clothes to a man the most convincing arguments one can use are that the suit fits him properly, looks well on him, is made of the best material, and is made by a tailor who knows his busi- ness. A woman, on the other hand, will probably be more 224 THE RETAIL CHARGE ACCOUNT impressed by the style of the suit she is purchasing than by any other consideration. The fact that the leading fashion authority of Paris has pronounced the style correct will have a little more effect on her than that the material is better than another suit. There are other feminine characteristics which should be studied, but the few which have been mentioned are typical. All the points just cited can, of course, be carried to an extreme. They are simply suggestions to be always kept in mind when the letters are being composed. The solicitor must take advantage of the characteristics spoken of without ap- pearing to do so, for, should his purpose be evident, the whole scheme falls flat. Points of Appeal The points of appeal which can be used in soliciting ac- counts divide themselves naturally into two classes. There are, first, the conveniences enjoyed in running accounts in general, and secondly, the advantages gained when one buys at the particular shop that is soliciting. Among the advantages de- rived from having monthly charge accounts the following have been urged with success : 1 . There is no bother waiting for change or rushing to meet C.O.D. deliveries. Goods will be left at the door of the cus- tomer without disturbing or requiring her to have cash ready to pay the driver. 2. A regular itemized monthly account and the settlement for all purchases at one time, puts the customer's shopping on the same basis as her gas, electric, and telephone bills, thus simplifying household bookkeeping. 3. Managing a household on a strictly cash basis is difficult. A charge account will make it easier for her to keep a check on her household expenditures. The analogy of a checking account may be used. 4. Advance notices of sales are sent to charge customers. BUSINESS-BUILDING 225 One can make arrangements to be present for an early selec- tion undisturbed by the crowd. This advantage is especially attractive virhen a sale of a certain limited quantity of goods is announced. 5. The charge customer enjoys many conveniences and privileges, acts of personal service and courtesy, that only such a customer can enjoy, because she is naturally better known in the store and thus the store is better acquainted with her par- ticular tastes. 6. The delivery system passes her door daily. All she need do if she wants something in a hurry is to telephone the shop. When a woman feels that she does not use the store fre- quently enough to justify a charge account it should be the solicitor's purpose to urge that arranging an account is putting her under no obligation to make a certain volume of purchases each month. He should make it clear that the account is opened simply to make occasional visits to the store as free from annoyance and as full of convenience and pleasure as it is possible to provide. The points of appeal which must be used to influence a prospect to purchase at the shop vary and are often peculiar to the shop. But in general the quality of the merchandise, character of the service, economy iti prices, and similar argu- ments can be expressed. The ingenuity of the solicitor is often taxed in this connection. Soliciting by Mail The types of letters addressed to prospects must be care- fully selected. Letters written to women who have accounts in many shops should not waste valuable space in telling them the advantages of a charge account, because they already know this from experience. Such letters should speak particularly of the advantage of using the store from which the letter is sent. On the other hand, letters addressed to people who are not 226 THE RETAIL CHARGE ACCOUNT rated and who, it can be taken for granted, do not usually run accounts should dwell particularly on the advantages and the convenience of the charge account. Humorous or so-called "smart" letters should be very sparingly used. In fact it would be better not to send out any such letters at all, except possibly as replies to customers who write in a similar strain and who are likely to accept the letters in the spirit in which they are written. Note this very important point, the disregard of which may result in the failure of a solicitation campaign : Every letter sent out soliciting an account should suggest some definite action, and every soliciting letter should have enclosed a reply en- velope and information card. This card the recipient is re- quested to fill out and the receipt of it by the store will signify her consent that a monthly account may be arranged for her. The card and the reply envelope make answering a solicitation too convenient to allow a woman of refinement not to show the courtesy of replying to the letter. In a solicitation letter, or for that matter in any letter, great care must be taken with the opening and closing paragraphs. The opening paragraph must be interest-compelling and the closing paragraph action-clinching. Sometimes a good plan is to write the first and last paragraphs, and then build the body of the, letter between them. Short paragraphs, by the way, are necessary to hold interest. It is easier and more profitable to appeal to the sight than to the mind. Other Methods of Soliciting There are two other methods of soliciting accounts be- sides directly by mail. They are merely mentioned in passing as follows: One is the personal representative method. While the difficulty of getting entry into the homes of the well-to-do is conceded, nevertheless some stores have found it advisable to BUSINESS-BUILDING 327 have a highly paid representative call on customers in the inter- est of the store. The advantage in personal solicitation is questioned. An individual is nothing but human and is subject to human changes and may, because of a bad breakfast, make an un- pleasant impression not only for himself, but also for the store. All form letters that leave the house on the other hand, not being human themselves and not affected by bad breakfasts, can always appeal to a feeling of good-will, and when properly prepared are presentable and acceptable and will always have a well thought out message for the individual addressed. Another way of soliciting is to ask the salespersons who know their customers to influence them to open accounts. This, is, indeed, a valuable and effective way. But there is always the danger of the salespersons not understanding fully the na- ture of the charge privilege and thus giving the customer the wrong impression of what an account really is. Very good results are frequently obtained when a sales- person turns in the names of her customers and they are solicited with a personally dictated letter, mentioning the name of the salesperson or floor manager that has suggested the account. Such mention gives an added personal touch to the transaction and the appeal can hardly be resisted. Cost of Solicitation As for the cost of solicitation, $5 or even a little more to secure a good new account can well be considered cheap. A recent campaign of about 13,000 net number of names resulted in 1,160 accounts being opened within three months after the campaign commenced. The average cost of each one of these accounts was $3.07, and that with labor high and paper at 21 cents a pound. Of course, additional accounts have been opened since then as a result of the same solicitation, bringing the cost still lower. 228 THE RETAIL CHARGE ACCOUNT It is undoubtedly worth while to solicit accounts, not only because of the immediate results but even more because of the amount of good-will and friendship it brings to the house. But like everything else solicitation of accounts must be properly done to be worth while. There is a legend somewhere that the distance from Heaven to Sheol is a hair's breadth and that the two places are sepa- rated by a transparent wall. So it is with the writing of let- ters especially in connection with solicitation of accounts, with this exception, that in letter-writing the separating wall will crumble at the least indiscreet touch. Credit Man as Builder of Business The credit man who wants to keep good the name of his department or, as is necessary in so many cases, desires to clear the department of the slander that it is a destroyer of business, must not allow any opportunities to go by. With proper management the interest of his department will per- meate the entire concern with enthusiasm and a desire to give and seek the closest co-operation. He must show him- self ever anxious to build good-will for his house. While being a good collection and credit man, he will see to it that every representative of the house sent out to a customer, whether it be a person or a letter, is courteous and friendly and breathes the spirit of service and efficiency. He will constantly be increasing his charge list with desirable names, and will not allow an old account to become dormant with- out sending out at regular and frequent intervals dignified but telling appeals for the resumption of patronage. CHAPTER XV CREDIT CO-OPERATION BETWEEN BANKER AND RETAILER Banks as Retail Credit Grantors It has been said that the banker is not a retailer, that his province is that of financial transactions only, and that as such he cannot be included in the host of retail credit grantors. We hold otherwise. Every time he makes a loan on the note of one of his customers, unsupported by any collateral to secure the obligation but relies on the strength of the customer's moral and financial responsibility, just so surely does he operate on the basis of the principles laid down and followed by the credit-grantor who deals in merchandise. In opening an account with a new customer the wide-awake banker is very anxious to know all about his new depositor, how he pays his bills, how he stands in the community, and what his general reputation is. Where, for the most part, does the banker obtain this information? How has the de- positor established for himself a reputation, good or bad, ex- cept by the manner in which he has discharged his financial obligations with the various merchants from whom he has made purchases? The exchange of references between bank and store or indi- vidual possesses a certain reciprocal value, and it is the pur- pose of this chapter to determine just how valuable this information really is as given under the present system of trading information, and also how the methods may be improved upon to the material advantage of all parties concerned. 229 230 THE RETAIL CHARGE ACCOUNT Inquiries Made of Banks When the appHcation clerk reaches the point in his inter- view with his customer where he inquires for the latter's bank reference he should be very careful to obtain the correct name of the bank, if the customer has a bank account, and the particular branch with which the customer does business, to- gether with the exact name under which the account is kept. If Mrs. Richard Brown of New York says she has an account with the Corn Exchange Bank, but the clerk fails to elicit the fact that the account reads Ethel Browne and does not learn in which of the forty odd branches she does business, inquiry at the main office for such information as they may have in their files regarding Mrs. Richard Brown is likely to bring small result. Assuming that the clerical and mechanical part of passing upon the application for an account has been properly executed, let us see just how valuable is the reply to an inquiry of the bank reference that finally reaches the desk of the credit man- ager. In the first place, what relations exist between the bank and its depositors? Just how much information niay a bank properly give regarding an account entrusted to it? How much of the bank's reticence concerning its customer is based on practical reasons, or is simply the continuance of customs which have grown up with the banking business, but which fortunately are being sloughed off as banks adopt more modern views and methods? Obviously we must know what information we want from the bank, and how much of this the bank is willing to give. The following inquiry blank (Figure 20a), formulated after considerable effort and discussion with various prominent banks, has proved eminently satisfactory so far as the granting of actual information is concerned. The blank is in duplicate, one sheet headed "Retain this for your files" and the other "Return this to us." The blank has reduced to a minimum the CREDIT CO-OPERATION— BANKER AND RETAILER 23I ASSOCIATED RETAIL CREDIT MEN OF N. Y. CITY. INC. IS WEST 37TH STREET NEW YORK CITY For No. From No. Gentlemen : The party named herein has made an application for a charge account at one of our Member Stores and has given your bank as a reference. We would greatly appreciate having the questions given below answered, and assure you any information given will be held in strict confidence. Very truly yours. General Manager Name- Residence . Business Business address- Depositor how long? Are Balances? Large Q Medium Q Small Q Any Loans Extended? Loans met Satisfactorily? - - Is Account in Funds for Checks Presented ? — Do you Consider Customer Reliable and Worthy of Credit? RETAIN THIS COPY FOR YOUR FILES Figure 20. (a) Inquiry Blank to be Sent to Banks. (Size 5x8) 232 THE RETAIL CHARGE ACCOUNT labor of making and replying to inquiries and has automatically given banks valuable items of information regarding their depositors. Another form of inquiry blank that has given satisfactory results is shown in Figure 20b. yrtogoH ancC ^OTn/uimv TJEw York Cm. REPLY AccmM tinec^ - ~ /»w»ee lUtancf %. _. . Proent Balance $. Would yaa recODimend (or Credit ?.. . . CAb TOO kdviKu 10 Muni, or Extent r>rRe«ponsibility ?.... desires to open > charge account with us and J^ves your name al reference Will you be good enough ro furnish u- with ill possible Jrfinili inform- lion regarding tubgccl't responsibility, standing and bill papng habitK so a* 10 enable us to judge to what extent applicant may be entitled to cicdit. We shall of conrse consider juch information sirictty eonfidtiiliat. Your counesy will be greatly appreciated. Your* vtf7 m^. i7Z^o*r K >- D 5 < 111 III y O O bl 7 < 1 2 5"- ^■ U Ui u U IS < ili oi o 111 »- < o o V) < "ti';;:igs|| ••..■-•SpS .. o > E'l 5 E S « U) •SjE:5|3|-=« gj) S ^ *= 5*; ■-" *- S 2 o*" fl " "S >» =111 t|i:^-2»3o £'^ •■>.»> g^E ^ 2 "■■s'^'o E *= £ >'c c'"_2 £ « s 2 ■s-°.s- = s=| c= »•=.= 3 8 S E _o rt *.■« "^ o_g o o « B^ S a ^ .S « :-ot.-2 E " t « C'5 J; ■3 a-' Jl ■ 254 APPENDIX REFERENCE CLEARANCE BUREAU Of The Associated Retail Credit Men of N. Y. City, Inc. 15 West 37th Street CONFIDENTIAL INFORMATION SEND TO THE BUREAU IMMEDIATELY Name (Surname first) Residence Former Residence Occupation Business Address OWING NOW FOR MONTHS OF Account Closed (Indicate by Check Mark) Atty. Slow Pay Disputed Ck. Ng. Uns'fty P.&L.A/C Domestic Troubles Dealing Remarks- Date- -Member No.. Figure 22. Form for Report to the Reference Clearance Bureau When an Account Is Closed THE REFERENCE CLEARANCE BUREAU 255 files may be found the names and credit records of all the individuals whose names were reported on the association bulletins before the bureau's organization. In addition to this original list, information may be found on all those who have applied for credit with members and with a large number of non-members. We might cite here a complete transaction. For instance, Mrs. John Doe of 401 Park Avenue may apply for a charge account at a store. She furnishes to the credit man the names of two stores where she has an account, a bank, and possibly other personal information. The credit manager will send to the bureau this information, and the subject of the inquiry will be checked through the files, the stores referred to cleared, and any additional information that may be col- lected on this account sent to the inquiring member. This subsequent information may show that the applicant for the charge account has accounts in several other stores where she is still owing amounts that may be long past due, accounts on which unsatisfactory experi- ences may have been had; or it may disclose that a suit or a judgment has been taken, or that there may be domestic troubles, in which her husband may notify the store that he will not be responsible for any charges incurred by his wife. This class of information will immediately put the credit man on his guard. He may send for the prospective customer, or notify her that the application has been declined. Should the information on the account prove to be satisfactory and at a later date a store notify the' bureau that it has closed the account for any reason, all members recorded as having been interested in the account are automatically notified of the action taken by the reporting member and the details given. This automatically serves as a warning to the stores where the applicant has an account. The credit man, on receipt of this information, then proceeds to deal with the account as he sees fit. Taking another typical example of the operation of the bureau, suppose Mrs. John Smith asks for credit and gives two Fifth Avenue stores as references. The store to which the application is made fills out a form (Figure 25) which is printed in "ditto" ink. Each store has a code number and this number is entered in the proper place to indicate for whom the reference is being cleared. In filling out the form the stores are requested to give the full Christian name and initials of the applicant, the exact address, former address, occupation, and business address to insure adequate com- parison. The form is taken to the office of the bureau by a messenger 256 APPENDIX Fpntt9 REFERENCE CLEARANCE BUREAU ,of the Associated Retail Credit Men of N. Y. City, Inc. IS WEST. 37th STREET We Ai;iswered Reference tnqtiiry from. On. (surname) Residence Business Address- Our Ledger Experience is as follows: Selling how long Highest Credit Owing now For months of Payments are made (In dicate by check mark) 30-60 60-90 90-120 120&ovar As agreed Uns'fty Atty'eCel'n P&L Account Active Account ' Inactive When last sold REMARKS: Date. Member No- Members will use this form in reporting DAILY to the Reference Clear- ance Bureau. All inquiries answered direct to non-members. Figure 23. Form Showing Information Sent to Non-Members of the Bureau THE REFERENCE CLEARANCE BUREAU 257 who makes the trip according to a regular schedule a number of times a day. Enough copies of the form are made on duplicating machines to go to each of the stores mentioned as references. These stores fill in their ledger experiences, and on the next delivery the various REFERENCE. CLEARANCE BUREAU of the Associated. Retail Credit Men of N. Y. City, Inc. 15 WEST 37th STREET Name • (Surname fiiacl Residence Former Residence . Business Address — Date — ■ . Member No.- INDICATE BY CHECK NEW ACCOUNT CHANGE OF ADDReSS MEMBERS WILL USE THIS FORM IN REPORTING DAILY TO THE REFERENCE CLEARANCE BUREAU ALL CHANGFS OP AOORESS AND ALL NEW ACCOUNTS OPENED. NOT CLEARED through the bureau. Figure 24. Form Used in Reporting Change of Address or New Accounts Not Cleared Through the Bureau copies of the form go back to the bureau. The report is then sent to the original store. The information is also entered on a master card which is kept on file at the office. This card is similar in form to the report and is filed permanently in the bureau. If a request for clearance is received and the master card on file at the bureau has sufficient information not older than. 90 days, a report is made out immediately and sent on to the member request- ing it. When necessary the reference is cleared by telephone. When a store does not answer within 24 hours, a second request is sent. Out-of-town references are also cleared by the bureau, which sends for information to merchant-owned associations in other cities or to out-of-town stores directly. When a bank is given as a refer- ence, a separate form is used. This is sent in duplicate so that a copy may remain on file with the bank. The bureau also keeps the credit man advised of any unusual PLEASE TYPE IN NAME AND ADDRESS USE DITTO PENCIL DITTO RIBBON OR Dino CARBON REFERENCE CLEARANCE BUREAU Of The Auoeiated Retail Credit Men el N. Y. City, Inc. 15 Wetl 37tli Street To Fo^ Card Clear Ledger experience is desired on llie individual named lielow-AII inlormalion will b« kept confidential. Namo Residence Former Residence Occupation Business Address Selling liow long Higliest Credit Owing now For months of 30-60 60-90 90-120 iZOdOnr Ai agised Uni' 111 Ut'lsCol'i PAL Payments are made (Indicate bi checfc mark) Account Active Account Inactive When last sold Refers to PLEASE DO NOT WRITE IN THIS SPACE General Remarks Figure 25. Form Used in Clearing a Reference 258 THE REFERENCE CLEARANCE BUREAU 259 happenings to an account that his store may be interested in, such as unusual activity on the part of an individual in opening new accounts, unusually heavy buying on an account, or information to the effect that an imposter is buying on an account. Information of this type is automatically flashed to all stores interested. A special daily bulletin is furnished to all stores, publishing items that may be of interest to the retail credit man, reported to the bureau by members. This bulletin service gives the details of bad check operations, advises caution in extending credit to individuals who do not appear to be responsible, publishes notifications of domestic troubles, and any other items that may interest the credit man. Through national afiiliation with other bureaus, the credit standing of individuals moving from one city to another is reported for the benefit of the retail merchants. The importance of getting the Christian name in full, the present and former addresses, and the business connections of an applicant at the time the application is made is impressed upon the members of the bureau. This oftentimes works to the advantage of the inquiring store, as information of a very unsatisfactory nature may be on file concerning the individual at a former address. With a good reference clearance bureau in operation the fraudulent buyer, the bad check operator, and the poor credit risk meet their Waterloo when they seek to ply their professions amongst the retail t.-ade. A telephone call to the bureau oftentimes brings offenders of these types into the hands of the law. The most important medium for credit basis today is that of the experience of other houses with the risk in question. The reference clearance bureau is to the retail credit grantor much what the clearing house is to the banks. It is a pivot around which retail credit business may circulate with reasonable safety; it is a clinic for the chronic credit abuser; it is the pulse of the retail charge business. It is a beacon light on an uncharted sea; a nucleus for a credit men's organization and for the promotion of a credit man's welfare. It is an educational center for disseminating among the public such propaganda as will aid a credit man's work. All authorities on the subject of retail credits are of one opinion — that credit may be granted with more profit and safety to the person whose record is that of paying his bills promptly and keeping his word and living up to his contracts, rather than to a man or woman who can present a substantial financial statement that is not backed up by a record for the prompt payment of accounts. INDEX Accounting methods, 173-192 billing, 180 Form, 181, 182 errors, 185 ledger sheet. Form, 178, 179 posting, 177 proofs, 183 suspense and profit and loss counts, 1 09-1 1 5 trial balance, 184 vouchers, 176 Acknowledgment card, Form, 28 Address, change in, 168 customer's, 20, 22 Age, customer's, 21 Application clerk, 155 Application form, 18 clearing bureau, 253 Assistant credit managers, 13 Authorization of charge, 53-75 indexes to be changed, 64 mechanical systems for, 68-75 no-account charges, 65 OK of check, 57 records for, 67, 160 refer authorizer, 61 tuberoom, 57, 61 B Bad checks, 149-153 Bad debts, charging off, 1 14 Bad-paying accounts, 40, 95 Bank, customer's, 23 B ank — Continued references and inquiries from, 229- 243 Form, 231, 232 Bankers, 229 Bankruptcy, of customer, 141-146 of husband, 46 Bible, quoted on credit, 3 Bookkeeping (See "Accounting methods") Business, customer's, 22 firm accounts, 29 Capital, relations to collections, 85 Card index systems, 161-169 Centralized control of authorization not possible, 54 Charge account, application for, 17 benefits, 3-8 classification of, 93 closing of, 39-52 information concerning applicants, 17-38 methods of obtaining, 32 opening of, 17-38 soliciting of, 210-228 unprofitable, 48 vs. instalment accounts, 244 Charge-take transactions, 56, 59 Checks, bad, 149-153, 240 certified, 239 Claims settled out of court, loi Clearance bureaus, 240, 251-259 261 262 INDEX Clipping bureau, 138 Closing of accounts, 39-52 C. O. D., goods sent in error, 67 Coins, charge-take system, 56 Collection department, co-operation with credit depart- ment, 89 customers' records in, 78-81 efficiency of, 135 records, 78-81 Form, 80 Collection manager, 87 Collections, 84-108 instalment accounts, 123 letters, 40-45, 102-J08, 130 premature, 172 methods for overdue account, 40- 45, 102-108, 130 monthly table of, 86 records on suspense accounts, no system and policies of, 97 Collector, 90 Complaint department, 90 Conditional sales contract, instal- ment accounts, 121 Contract account, 30 Correspondence, collection letters, 40-50, 102-108, 130 Credit department, 9-16 as a business developer, 206-228 assistants and clerks, 13 co-operation with collection depart- ment, 89 records, 33 Credit information, from banks, 229-243 ■ Form, 253-254, 256, 257 Credit manager, 9-16 head of bookkeeping department, 192 reports to, 136 Customer, application for charge account, 17 Customer — Continued bank inquiries concerning, 229-243 Form, 231, 232 business or firm, 29 classification of, 125 dressmakers as, 31 government or contract as, 30 hotels as, 30 identification of, 56 individual, 17-29 information concerning, 17-38, 138-153 limitations and restrictions on account, 76-83 notification of granting account, 3 1 prospective, 212 soliciting for new, 210-228 Death, claims against estates, 149 Debtors, classification of, 92 Deferred payment accounts, 28 Delivery department, charges OK'd by, 57 Direct call phone system, 73 Directories, use of, to gain new customers, 213 Discounts, 202-205 Divorces, 146 Dressmakers, 31 E Electric credit system, 73 Electric phone, 70 Errors, goods sent C. O. D. in, 67 in authorizing charges, 65 File cabinets, 165 INDEX 263 167 Files, credit, 33-37 Forms, 34, 35, 36 records, 161-169 Filing systems, 158 credit files, 33-37 Forms, 34, 35, 36 FoUow-up system, 99 instalment accounts, tickler system, 167 Foreclosures, against customer, 141 Fraud, charge-take transactions, 56, 59 Government account, 30 Guaranty of account, 27 H Law (See also "Suits at law") collection manager's knowledge of, 89 Lawyers, 113 Ledger, suspense, no Legal proceedings, 45, loi Letters, collection, 40-50, 102-108, 130 premature collection, 172 Limitations of accounts, 76-83 Loss, 109-115 M Mail, soliciting new accounts by, 225 Mailing lists, 212 Mechanical systems, charge author- ization, 69-75 Minors' accounts, 21 Hotel accounts, 30 Husband, bankruptcy of, 46 liability of, 147 Husband and wife, divorces, 146 separations and N Names, customers', 19, 163 Newspapers, use of, to gain new customers, 214 No-account charges, 65 Notification of account granted, 31 Identification of customer, 56 Inactive accounts, 209, 215 Index systems, 161-169 Information from banks, concerning customer, 229-243 Inspectors' vouchers, 63 Instalment accounts, 29, 1 16-137 follow-up methods, 167 vs. charge accounts, 244 Insurance, instalment accounts, 122 J Judgments against customer, 139 O Office records, 33, 154-172 folders. Form, 34, 35, 36 OK'ing charge, methods of, 57, 61 Overdue accounts, 40-97 Payment of account, prompt-paying, 92 slow-paying, 40-45 Payment on account, 100 Pneumatic tubes, 57, 69 Profit and loss accounts, 109-115 264 INDEX Promotion of business through credit department, 206-228 Purchases, limitations and restrictions on, 76-83 records of, 159 Slow-paying accounts, 40, 93 Soliciting accounts, 210-228 Suits at law, following up customer's affairs, 138 for collection of account, 45, loi Suspense account, 109-115 Records, authorizers, 160 collection department, 78-81 Form, 80 credit department, 33 purchase, 159 suspense accounts, no Refer authorizers, 61 References, customer's, 24 Reports to credit manager, 136 Reserving the charge, 62 Form, 63 Restricted accounts, 62 Retail Credit Men's Association, 37 Returned goods, 193-202 Risks, classification of, 26 Sales check, 55 irregularities on, 60 Selective call phone system, 73 Signature and floorman method, charge-take system, 57 Signature, customer's, 25 Telautograph, 169 Tickler file, 167 Trade acceptance, retail, 245-249 Tuberoom, OK'ing of charges, 57, 61 Typewriters, 170 Unprofitable accounts, 48 V Visible index systems, 158-169 Vouchers, 176 W Wife, separation and divorce of, 146 signature of, 46 Women, psychology of, 222 Won't-pay or judgment-proof ac- counts, 96