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NORTHWESTERN
UNIVERSITY
LIBRARY
The Gift of
JOSEPH SCHAFFNExR
LIBRARY
0fk wpk wfi wn A ffk ffk ffk
THE CREDIT
ORGANIZATION
INSTRUCTION PAPER
PREPARED BV
• JAMES B. GRIFFITH
BEAD OF DEPARTMENT OF COMMERCE. ACCOUNTANCY, AND BUSINESS
ADMINISTRATION, AMERICAN SCHOOL OF CORRESPONDENCE
AMERICAN SCHOOL OP CORRESPONDENCE
CHICAGO IU.INOIS
• U.S. A.
Copyright 1909 by
American Schooi, of Corrbsfondencb
Untered at Stationers' Hall, London
All Rights Reserved
THE CREDIT ORGANIZATION
THE CREDIT MAN
Acknowledged specialists may be employed in every branch of
an enterprise, the shrewdest brains may be engaged in buying, pro¬
ducing, and selling, but the final conservator of the business is the
credit man; others may be profit makers, but he is the 'profit saver
in every commercial organization.
He is on guard constantly—always on the lookout for the slightest
sign of danger, ever ready to take prompt and vigorous action to avert
disaster to his house or to lend a helping hand to a customer. His
duties make him the most misunderstood man in the entire organiza¬
tion.
He is thorough, methodical, painstaking, a keen student of
human nature, possessing faith in the inherent honesty of his fellow
men. The insistent search for facts that he demands, may eause
him to be regarded as an inquisitive busybody by the very customer
whom he desires most to help; as a carping critic, by the salesman
of his own house.
Through it all he remains faithful to his trust, watchful of the
interests of his house, and has the satisfaction of knowing that in
spite of his mistakes but a remarkably small part of his credits
prove bad—that where his conservatism has lost hundreds in trade,
it has prevented the loss of thousands.
On no man in the organization is there such tremendous pressure
brought to bear to secure favors; on no man do the consequences of
his own mistakes come back so surely. The credit man must be
firm, and, while availing himself of every reliable source of informa¬
tion, he must stick to his decisions, for he is expected to collect from
those to whom he has extended credit. Every other man has a loop¬
hole through which he may escape criticism; if a customer is lost
because goods are unsatisfactory, it may be "up to" the salesman,
the shipping clerk, the superintendent, a foreman, or even an ob-
Vopyright, 1903, by American School of Correspondence.
2
THE CREDIT ORGANIZATION
scure mechanic. The credit man has no one on whom he can place
the blame; if a customer fails to pay, no reason short of an earth¬
quake will relieve the credit man of the responsibility.
So much for the credit man. Now for a discussion of the work
he is expected to do, the machinery of his office, and his methods of
operation—for the writer disclaims any intention of attempting to
teach the student how to become a credit man.
.INFORMATION REQUIRED
The most important function of the credit man is the determining ^
of the credit risk—the amount of credit that can safely be extended to
each individual. WTien he consents to the delivery of goods to be
paid for at a future date, he is loaning his firm's money.
Before credit is granted extreme care must be exercised in
determining the ability of the purchaser to pay, or that he will be
able to pay when the bill is due. After necessary precautions against •
assuming too great a risk have been taken, a further insurance against
loss is included in the amount added to cost—a certain per cent of the
profit is expected to offset the risk.
In determining the credit risk, different classes of information
are necessary in different lines of business. While certain specific
information about individual applicants for credit is necessary, the
subject may be divided into two general classes—wholesale and retail.
Under the head of wholesale, is included information about all business
concerns, whether a single proprietor, a partnership, or a corporation.
In a general way also, the same information is required in respect
to these concerns by the banker, the manufacturer, the jobber, and
the wholesaler. Under the head of retail, is included the transactions
of a retailer with his customers, who may be regarded as individuals.
Leading authorities on the subject of credit place the factors
which determine the credit risk in two classes—the «Nx?i*nd the
business. Under the first heading is considered the business morals
of the debtor and his ability in, and familiarity with the business in
which he is engaged. The second heading—the business—is con¬
sidered from the financial standpoint, divided as to its assets and
liabilities, and the profits or losses made in its operation.
But as to the relative importance of the two principal factors—
the man and the business—authorities differ. In his valuable con-
THE CREDIT ORGANIZATION
3
tribution to the literature of credits, Mr. E. St. Elmo Lewis takes the
stand that the man—^liis character—^should be considered secondary.
To quote from Mr. Lewis' book:
If goods are the basis of all credit, character of the owner is and should
be an after consideration. The very first question any credit man should ask,
is, can he pay?
The question of a man's ability to pay is becoming of greater ease of
solution.
The question of the intention or inclination to pay must always be
shrouded in the nebulse of psychslogical theory.
^yhat is the applicant worth? is the cruical test. Then we shall test
him by another. What sort of a man is he?
Do we buy a law suit when we sell him goods?
How much must we add for moral insurance against loss?
Character is of vital importance in small concerns; of vital importance
in concerns doing a large business on small capital, and it becomes of less
importance as we progress into the field of corporations.
In direct contrast to this contention are the views of Mr. Ernest
Reckitt, as expressed in an address delivered before an organization
of bank clerks. After naming the factors to be considered by the
banker before extending credit, he said:
You will note that in enumerating these factors I place first, and pur¬
posely so, "The Man Himself," and I believe I am correct in stating that
bankers are now placing more stress upon this point than ever before. The
man of good character and intelligence, who is full of energy and pereeverance,
will not find it difficult to obtain a reasonable line of credit with his bankers,
while the man who is deficient in those qualities, whatever his reputed wealth
may be, will be looked upon with suspicion. It therefore behooves you to
become students of human character as well as students of banking, if you are
to fill the highest positions within your reach.
These comments may be out of the range proposed by this paper, but I
feel I cannot leave this topic without giving you an illustration of the point I
wish to emphasize, namely: That it is the character of the man, or men, in a
business, which must be first considered before the banker makes a loan.
Some time ago, in a certain city, there was a large corporation reputed to be
very wealthy, whose balance-sheets were beautiful to behold. Their business
being large, they were borrowers of some of the largest banking institutions
of their city. Apparently without^any warning the corporation was declared
bankrupt and went into the hands of a receiver. Later, investigation showed
that the balance-sheet was misleading; some people might have called it a
worse name, for the assets had been overstated and the liabilities understated.
I happened to be in that city at the time of this failure, and, meeting a director
of one of the banks with whom I was well acquainted, I inquired if his bank
had been caught. "No," said he, "they did try and open an account with us
some time ago with the object of becoming borrowers, but we turned them
down." I asked him what reasons he and his colleagues on the directorate
4 THE CREDIT ORGANIZATION
had for such action at a time when this corporation was supposed to be so
prosperous. "Well," said my friend, "some ^ime ago it came to my knowl¬
edge that this corporation paid no water tax and that its personal property
tax was a mere bagatelle to what it should have been, and I figured out that
the officers of a corporation that would be guilty of petty bribery would not
be good customers for our bank."
So it will be seen that a knowledge df the business morals of the men
in your community and a high ideal, on your part, of what constitutes good
business morals is a most essential quality in the make-up of a banker, and
-that it was these factors that enabled the bank of which my friend was a
director to escape what otherwise would have been a bad debt.
Financial Statements. Without attempting to decide the rela¬
tive importance of the two principal factors, it can safely be stated
that one of the first steps to be taken by the credit man is to secure a
financial statement from the applicant. And the character .of the
statement may serve as a guide in determining the character of the
man with whom he has to deal.
Most business men are willing to comply with any reasonable
request relative to their financial standing, when applying for credit.
Until recently, the average man had objected to giving out such
statements, except to his bankers, but with the more universal de¬
mands for such statements has come a change, and now a statement
of some sort is almost always obtainable.
The form of statements used by banks differ somewhat from
that used by manufacturers and jobbers, and, while it differs slightly
as between banks, and also as to whether the borrower is an individ¬
ual, a partnership, or a corporation, in general the statement re¬
quired follows the lines of the form shown in Fig. 1. This statement
is signed, in the name of the firm by a member, in the case of a part¬
nership; and in the name of the company by one of its oflBcers, in the
case of a corporation. A statement in the same form gives all of the
information of a financial nature required by the manufacturer or
merchant.
Analysis of the Statement. Of equal importance with the
statement is the ability to read it—to correctly interpret its real
meaning. This calls for a careful analysis of the several items of
which it is composed. To make a correct analysis means that the
credit man must have a general knowledge of the business in which
the one asking for credit is engaged. The banker must know, for
example, whether the season is one in which more capital is likely
THE CREDIT ORGANIZATION
5
to be needed in the trade of the borrower, or one in which he should
be liquidating his indebtedness.
So important is this phase of the question that some of the larger
banks have adopted the plan of assigning requests for loans in dif-
. ..... .. .. - .. 990
^ the parpoM of pbUioinr CnAlt wUb p«o (or maaty wklA. m$iy aam or tMrtoftor borrow at potf
obko tb« followioc •» • PULL. COMPLETE and troe Mateaeat ..preseat reaooffoea and liaMlitka.
aeMuaeca
1
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i
LlaBILITttS 1 1
e
-
3
Caob «e baaP or ia Book
Wor Merckaaatw -give aaae—aot 4ae |
Stock of McrckaodiM oo koed «t valao
I
MoUo iMl dac. oocarod
For Merebaadiu paM 4ae H
Motco pott 4ae. oocarod
To 1
Note* aotccarrd aot doe
Motet oottcorrd pttt 4ao
Accoaato aot 4ar
Aocoanio 4ac *04 aot 40 dojrt put 4aa
AceeaaU over 40 4»7t put 4w
For Borrowed Mooep—Rale ol lot. paid
Store BoUOIac at valac
S One
Oaofroa partaertoretockboiJero
S Xtao
Otbar peraaatl ptopertp'deeeriba It
Aatoaat eccarod S
Ckattel Mortfafu •
Upoa wbM pr^crty gleea
Raat Betato. uarket ealae. five aase ol peroea
Wbeadae
1
r
1
Mortfapu oa Real Betate—otate lacaabraau
on cub plree—wkea dae
Beat of Store per 7««.r f
AooatI Salw $
Aatoaat ol paat dae aotu
HooMtlead. at veiao-'otete ia wkou aaoM
Asoaot owiof oa jadpeaeet aoteo
Arejroa eareiy oa aotuor boadef
CoaSdeatlal, aad etktr dtbta aot locladed
laearaneei-otete ou akat propertp placo4 aa4
above Relereeccei
aauet ej rf|Himi
S
s
TOTAL ASSETS
TOTAL LIABILITIES OF EVERY KIND
NET ASSETS
Bueiaew
Nanciol
Located at
Partner* ia full
.
he a (uO and correct ttatcotent of fioaocid condition at this date, and anv chanfe that ia acainac ,■ .
eriU notify you at once.
Sictatore , , , -
♦ Fig. 1. Cu.stomer's Financial Statement
ferent businesses to different officers. One man will investigate
real estate securities, one, applications from board of trade houses,
another handles applications from packing houses, others look after
6
THE CREDIT ORGANIZATION
the steel, building, jobbing, and manufacturing enterprises. Each
man is a specialist, making a special study of conditions in the busi¬
ness to which he is assigned.
In making an analysis of a statement, each item must be taken
up separately and considered with respect to its relationship to other
items, and its bearing on the statement as a whole.
Cash on Hand. The cash on hand should be consistent with
the needs of the business, and, if listed separately, the cash in office
should never be a large sum. There is seldom any good reason why
cash should not be deposited daily. The banker will find it necessary
to carefully scrutinize the amount in bank, particularly if the borrower
claims to deposit in no other bank.
Merchandise. This item is always a somewhat uncertain quan¬
tity; often an estimate pure and simple, and the debtor is unlikely
to make his estimate too low. In the absence of provable figures,
it is necessary for the credit man to apply his knowledge of the busi¬
ness. Is the stock larger than should be required? Is it too low to
enable the debtor to keep pace with his competitors? Or, if a manu¬
facturing business, how much is raw material and how much finished
goods?
One of the important factors in making an analysis of this item
is a knowledge of the accounting methods of the debtor. Does he
keep stock records, or if not, is his stock well cared for and stored in
a manner to permit of a reasonably accurate estimate? On the .
latter point, reports of the observation of salesmen, referred to later
on, have an important bearing.
Bills Receivable. On the statement form shown, this item is
divided as to notes, secured and upsecured, not due and past due.
To state that the amount of bills receivable is so much is one thing, -
to state the amount not due, is quite another. Any considerable
amount of unsecured and past due paper indicates lax methods in
the debtor's own credit department.
Accounts Receivable. This item is divided as to accounts less
than 60 days past due and accounts more than 60 days past due.
These items require the same close scrutiny as bills receivable.
The two items—bills and accounts receivable—should bear a
reasonably constant ratio to the amount of sales. Any unusual
increase in the percentage of book debts to sales calls for careful
THE CREDIT ORGANIZATION
7
scrutiny, and leads to one of three conclusions: that trade conditions
are bad, that the credit department has been lax, or that the amount
is overstated.
The first of these conclusions is supported or rejected by the
credit man's knowledge of financial conditions in general, and of con¬
ditions in the particular trade of the debtor. During a financial
panic, or in a season following crop failures, it is to be expected that
book debts will be greater in amount than in ordinary times. In
the event of the third conclusion, it is time for a careful investigation.
As a rule, the investigation will be productive of best results if an
examination of the books by a public accountant is included.
Dm from Stockholders. This is an item which must be care¬
fully studied. Who are the stockholders or partners who own the
firm, and for what? What is their financial responsibility?
Sometimes, stockholders whose entire fortunes are invested in a
corporation are found to be debtors to the same corporation for
borrowed money.
Dm for Merchandise. This item is divided as to accounts not
due and past due. It should be carefully compared with the same
item in statements furnished in the past. An increase may or may
not be due to natural causes such as the requirements of the trade
during a particular season.
Dm for Borrowed Money. Any increase in this item should be
offset by an increase in assets, or a decrease in other liabilities.
Liability as Surety. This is an item of more importance than is
generally accorded to it. True, the liability is a contingent one,
but many a man has been forced into bankruptcy by the failure of
another, for whom he had become endorser.
Another item which should in the opinion of the writer appear
among the liaWlities, is discounted paper. When a man discounts the
paper of a customer, received in the course of business, he assumes
a liability for the amount, if not paid at maturity. True, the liability
is contingent, but a liability nevertheless. The extent of the lia¬
bility depends on the prosperity of his own customers and the care
which heAas exercised in accepting their paper.
Information for Retailers. The information available for the
retailer is of a very different class. Here, the factor, the man himself,
plays a more important part. The retailer is obliged to depend more
8
THE CREDIT ORGANIZATION
largely on his personal knowledge and the general reputation of his
customer.
The city retailer, for instance, needs to know where the man
works, his salary, his reputation for paying others—^his landlord,
grocer, and butcher — and something about his personal habits and
general reputation.
How long has he been in his present position?
Does he make frequent changes?
Does he own a home?
What rent does he pay?
Any other wage earner in the family?
These are some of the questions, the answers to which will
assist in determining the credit risk.
The country retailer needs other information about his cus¬
tomers. As a rule, he can answer all of the questions asked by the
city retailer in respect to his own customers. He is more intimately
acquainted with his customers; he has a better opportunity to learn
their characteristics and habits, than the city retailer. The country
retailer has another advantage, in that a closer bond of friendship
exists between him and his neighbor merchants. The interests of
city merchants are no less common, but distances separating them
make an interchange of views more diflBcult.
About his country customers—the farmers—the retailer re¬
quires still different information. Besides full information about
the real estate owned, and mortgages given, he needs to know some¬
thing about the man himself.
Does he market his crops early, or is he a speculator—always
holding for possible higher prices?
Is the farm well kept up?
Are the implements properly housed, or left outsid% at the
mercy of the elements?
Does he keep his live stock in good condition, and how much
does he feed for market?
Is he thrifty or shiftless?
Only by personal contact can these things be learned. The
country merchant who keeps in closest touch with his farmer cus¬
tomers—sympathizing with them in their misfortunes and rejoicing
in their prosperity—^is usually the most successful. As one country
THE CREDIT ORGANIZATION
9
merchant puts it, he must act as a general advisor, and help them
bear their very aches and pains.
SOURCES OF INFORMATION
The usual sources of credit information are the mercantile
agencie,s, reports from local correspondenjts, reports from traveling
salesmen, and merchants' associations or credit reporting agencies.
Mercantile Agencies. Of these sources, perhaps the best known
and most widely used by manufacturers and jobbers, is the mercantile
agency. The mercantile agency is the outgrowth of a necessity.
About the year 1840, a few New York merchants formed an associa¬
tion for the interchange of credit information. Later, this became a
business conducted by individuals who charged a small fee for written
reports.
The business has grown to such proportions that a single agency
requires about 200 offices, located in the principal cities throughout
the world. In the territory of each office, which is presided over by
a manager, correspondents are employed, and at certain seasons
country reporters traverse every district, gathering data to be for¬
warded to the branch offices. Every court house in the United
States has its paid correspondent, who promptly reports any action—
as the filing of suits, recording of mortgages, or entering of judg¬
ments—that might affect the credit risk of any business man in the
country.
Some idea oh the magnitude of the business, and the task of
gathering statistics, can be gained when it is considered that the books
of a single agency contain the names and ratings of about 1,500,000
persons. About each of these individuals, the latest data collected
by the reporters is on file in the various branch offices.
Delays in securing information is one of the most common com¬
plaints against the agency service, but the service is probably as
prompt as can be expected Suppose a request for a special report
is received this morning. First, the information on file is copied,
and proofread to guard against errors This is sent to the subscriber,
but if it is not of a recent date he is advised that further information
will be forwarded. Or, there may be no data on file, in which event a
reporter is assigned to the case. He may be obliged to make several
calls before finding his man, and when found, the man may be reluc-
10
THE CREDIT ORGANIZATION
tant about giving information. If real estate is listed, the real estate
man must look up the title and mortgage records. Thus, two or three
days may elapse before it is possible to furnish the report.
Some complaint is heard that reports furnished by the agencies
are not sufficiently specific—which is probably true in many cases—
but it is often quite difficult to obtain information on which positive
statements can be based. • On the whole, the service of the agencies
is of very great value to the subscriber. As to its defects, the best
way to overcome them is for the wholesaler to establish a credit
organization of his own, to supplement the service of the agency.
Local Correspondents. If the matter is properly handled, much
valuable information can be secured from local correspondents. The
banker, or a local attorney, is in a position to make confidential
reports on local merchants. In fact, the agencies secure much of
their information front this very source.
But, in establishing local correspondents, the exercise of good
judgment is necessary. The local attorney should not be expected
to furnish information without pay, or to go into details that would
not be asked of an agency charging SIOO.OO a year for the service.
An attorney has favored us with a blank sent out by one whole¬
sale house, on which he is asked to make a complete report. Among
other information requested, the blank calls for the value of mer¬
chandise, realty, cash, total worth, liabilities, and numerous references
to his character, habits, etc. Following this statement is the question,
"if not paid, can you collect?"
Here is a very complete statement, to compile which would
require several hours' research, but without a single suggestion that
the attorney will receive pay. And then he is asked if he can collect,
after the house has exliausted all usual methods.
A certain other concern, when opening new territory, ^ites to
a local attorney telling him they are entering the field; that they will
require information from time to time, for which they expect to pay
a reasonable fee; and ask if he is in a position to represent them in this
capacity. At the same time the attorney is told that he will receive
for collection any accounts on which such action may be necessary.
When a special report is desired, the blank shown in Fig. 2 is
sent. The local correspondent is expected to give as full information
as possible, for which he is paid promptly.
THE CREDIT ORGANIZATION
11
In this way, excellent results are secured. There is some ques¬
tion about the advisability of leaving the amount of the fee to the
correspondent. A better plan is to have the fee to be paid for all
ordinary reports decided in advance, extra compensation to be
allowed in special cases. The average country attorney will furnish an
intelligent report for two dollars—a low price for reliable information.
/9
DearSfr;
P/ease make fhi foUou/^ing n^rk ■ prompHy, amk semi us
Mt for your services. _ •
ours kru y. V/lt-SON CoMPAnY.
-Firm fismes.
-Partners
-Est. value of kidse. Rea/ky .
-Encumbrance on Rea/ky
. Cbaracker— -kfabiks
. is be good for On Time t
-Remarks
Sign.
Fig. 2. Local Correspondents' Report Blank
Traveling Salesmen. Certain information about the business and
general reputation of a customer can best be obtained through the
salesmen of the house. They are the men who come in direct con¬
tact with the customers, acquiring an intimate knowledge of each.
The average salesman objects to making out lengthy reports,
but if approached in the right spirit, will give the credit man the
benefit of his observations. The salesman's judgment is scarcely to
be relied «upon in the matter of the financial standing of a customer
—his anxiety to sell goods makes him too optimistic — but he is
probably the best judge of the character and business ability of a man
on whom he is calling regularly.
12
THE CREDIT ORGANIZATION
Frequently a spirit of antagonism to the credit department exists
among the salesmen. This condition indicates a decided lack of
that cooperation so necessary to the success of any business. The
credit man who possesses tact can overcome this antagonism, if he
will but drop his cold-blooded attitude and meet the salesmen on a
friendly basis. If he will cultivate their friendship, the salesmen
will respond with information of great value to him.
Naturally the information secured from a salesman differs from
that received from other sources. About the class of information
that can be expected is provided in the blank shown in Fig. 3. This
can be printed on a standard size card.
Nama.
A</cfress
/} A/j ius/ness prosperous?-
■S/ocA u/'e// selected ?
Ot/er or understocked ?
Competent c/erks t
Location Good P
Genera/ reputat/onp l.
Do you consider tiim comjaetentP—
Remarks
.-So/esman.
Date _
. Grouting p.
-We// kept?-
-We// disp/ayedp-
. Hou/ many P
-Attentnre to iusiness P
-Drink P Gamb/e /_
Prosperous P—
Fig. 3. Salesman's Customer's Report Blank
Retail Credit Reporting Agencies. In many cities, merchants have
formed associations for the exchange of ledger experiences. Some of
these associations have been very successful, but the chief difficulty
has been in sustaining interest and in securing the necessary informa¬
tion. This lack of interest seems to be general in mutual associations
—every man seems afraid that he will give more than he receives.
THE CREDIT ORGANIZATION
13
Out of the merchants' association has grown the retail credit
reporting agency—the exchange of information being conducted as
a private enterprise. The expression, exchange of information, is
used advisedly, for the service of these agencies consists mostly of
reports giving the experiences of other merchants. To quote from the
prospectus of one of these concerns:
Our company does for the retailer what Bradstreet and Dun do for the
wholesale dealer. We arrive at the result, however, in a different way. We
give accurate information as to how people pay their bills, regardless of their
financial standing.
This information we get from merchants and professional men by means
of . a thorough canvass of our entire territory. We visit all people doing busi¬
ness, whether our subscribers or not, and in this way secure the names of all"
consumers in business or private life.
We are thus able to tell the grocer how Mr. B. pays his butcher, his tailor,
his hatter, his doctor, and every other trade or profession he deals with, and
each of these in turn is furnished with the same kind of information from the
grocer; thus we establish the exact credit standing of Mr. B. with the entire
trade of the city.
Acting upon information thus furnished, every merchant or professional
man in the city knows from the most reliable and trustworthy source to whom
he can safely give credit and whom he should refuse.
For example, we here give a specimen rating with an explanation of the
same.
"John Doe, carpenter, 187 Broad St., 5(7 2F."
This rating indicates that five different merchants have found by ex¬
perience that John Doe is a prompt paying credit customer, and two other
merchants have foxmd him somewhat slow, but regard him reliable and trust¬
worthy.
Next example:
"John A. Doe, lawyer. 210 North Second St., 4D SB."
This rating indicates that four different merchants have found him too
slow in paying to be a desirable credit customer, and three other merchants
have found him bad pay and imworthy of credit confidence.
Other sources of information, which come under the head of
exchanges of ledger experiences, are the credit men's associations.
These associations, through clearing houses, exchange information
about their customers, thus supplying the wholesaler with the same
class of information as described above for retailers.
One credit man relates the following incident, illustrating the
value of association clearing house. On one of the reports
furnished by the clearing house, he noticed that another merchant had
refused credit to one of his own customers. Investigation developed
the fact that this particular customer's locality had suffered severely
14
THE CREDIT ORGANIZATION
from the destruction of crops by a cyclone. Now it happened that this
credit man's house was about to fill a large order from this very cus¬
tomer. The shipment was held up, and the credit man promptly
wrote to the merchant expressing regret that his community had
suffered so severely, and asking if his house could be of any assistance
to him. In closing the letter, the suggestion was made that since
collections were likely to be slow with the merchant, they would
allow him to cut down his order.
The letter had the desired effect. Instead of turning him down
the merchant was made to feel that he had friends in that house, and
it is probable that he continued to be one of their valued customers.
RECORDING CREDIT INFORMATION
Scattered information is of little value. A credit man may avail
himself of all sources of credit information, but unless he has it filed
and recorded where he can put his hand on it, he will find it of little
assistance in determining credit risks. He cannot "keep it in his
head" and get the best results.
There are credit men who profess to rely largely on intuition,
but the hard-headed man—the one who makes the fewest mistakes—
relies on his facts and figures. He uses judgment, but first wants
the facts marshaled in logical order.
Filing. The method of filing best adapted to the needs of a
given concern depends on the size of the business, number of cus¬
tomers, method of collecting information, and the quantity of data
kept on file. In a small business, depending almost entirely on the
ratings of the mercantile agencies, with an occasional special report,,
no special filing system is necessary. The few reports received can
be filed with the regular correspondence. But in a well-organized
credit department, handling credit information about a large number
of customers, the question of filing is of importance. •
In the first place, all reports should be kept in one place; special
agency reports, reports of traveling salesmen, local correspondents,
and the credit clearing house, with financial statements furnished by
the customer, should be filed together. This means that they should
be separated from the general correspondence; if filed with the
correspondence, they are sure to become scattered when the files are
transferred.
THE CREDIT ORGANIZATION
15
Without question, the most satisfactory method of filing is to
use the vertical file, with a folder for each customer. For the average
business, an alphabetical index is most satisfactory, but for a very
large business, with customers throughout the country, it is best to
subdivide the file by states and towns, arranging the folders of cus¬
tomers in each town alphabetically.
Credit reports are not, as a rule, of sufficient bulk to require the
large files and folders used for correspondence. A file of the same
HAMt
TOV/H
STATE
SM\PTO \
1 FIRM MEMBERS 1
"T RATI
^ PON ^
BUS\tiE.S3 \ RATINS \ RErERENCES
I BRADSTREET
TERMS AMD DISCOUNT \ HISHEST CREDIT
T
I
BUYS AESO OF
COLLECT VMANNER OF FAVINQ
Fig. 4. Front of Credit Information Folder
style, to accommodate folders about 7X9 inches in size, is more
compact, and has been found very satisfactory for this purpose.
A plain folder, such as is used for correspondence, will answer
the purpose, or a special form may be substituted. An excellent
example of the special folder is shown in Fig. 4. The special feature
of this folder is that on the ffap which folds over the front provision
is made for a transcript of credit information. The back of this
folder is printed as shown in Fig. 5. This form is used for a record
of purchases, and covers a period of seven years.
Card Transcripts. For convenience, it is best to make a brief
transcript of the credit information. This transcript should embody
16
THE CREDIT ORGANIZATION
the essential facts which naturally influence the credit risk, and should
be in such form that it can be referred to very readily.
As explained above, this transcript can be made on the credit
information folder, but the more usual plan is to use a card. For
each customer a card such as shown in Fig 6 is used. The special
feature of this card is that both the capital and credit ratings are
listed. Such a card saves the time that would be required to refer to
Year
i9oe
1910
1911
1912
1913
191 a.
191 S
.Ian.
Feb.
Mar.
Aor.
May.
June.
July.
Aua.
Sept
Oct.
Nou.
Dec.
Remarks
Fig. 5. Back of Credit Information Folder
the agency books, and affords a comparison of the ratings given by the
agencies on different dates. Both the book ratings and •special
reports are entered on this card.
A card which provides for reports, other than those furnished
by the agencies, is shown in Fig. 7. A line for the folder number
will be noted at the top, a numerical system of filing the folders
being used. Although the numerical system is frequently found,
it has no practical advantages, and the alphabetical system is to be
preferred.
THE CREDIT ORGANIZATION
17
The form shown in Fig. 8 provides for more general information
about the business—^such information as would be gathered from the
reports of salesmen and local correspondents. It will be noted, also,
Namo
Catalogue
Tou/n
-
Cr. Limif Sfate Business
Dun
Cap Rating
Dun
Cr Rating
Bond
Quarantea
Bradafraat
CapRating
Bradstrect
Cr. Rating
Bond
Guarantee
CustomersList
Dun
Brad.
IJ
\ /
Fig.
6. Credit
Agency R
eport Card
that the financial information refers more especially to the firm mem¬
bers. This card is used to supplement the books of the agencies.
Folder No. Limit of Credit it
Name
Address
Business
MERCANTILE ASENCY REPORT
Date Dun NetWoith Habits
Date Bradstreet Net Worth Habits
INF0RMA1
Bu Whom Reported
■ION FROM O
Net Worth
THER SOURCES
Worthy of Credit
z' \_
1 r
Fig. 7. General Credit Report Card
The card shown in Fig. 9 gives a complete history of reports
asked and received, and of credits granted. This form is used in a
18
THE CREDIT ORGANIZATION
business in which the purchases of a customer are infrequent, and in¬
volve considerable sums. The credit risk is considered each time
an order is received.
The card shown in Fig. 10 is used by a retailer. As is usual in
retail credits, the information provided for in this form refers to past
experiencfes and the general reputation of the customer.
Nama
Fult name of ou/ners Aoa
Mar.S. Real Est Fncumbzred Worfh Sfandtm^
Habif-s
Com/noncecf
Succeed
Former business and u/t>ere
Present sfock
Resources outside business
Totat u/orttr
Habits of paument
Cash ■ or credit business
Euer fail
Standing of firm
Bank
Euer burn
Progress in business
Branches
From whom do theu buu
Remarks
Hour much credit
Fig. 8. General CSredlt Information Card
Like the folders used for filing credit statements and reports,
credit cards should be indexed alphabetically, subdivided by states
and towns when necessary. Filed in this manner, each^ard is
accessible, and can be referred to quickly. An advantage of cards
for this and many other purposes is that obsolete matter is quickly
eliminated, and new names are added at will without disturbing the
general arrangement of the records.
BRANCH HOUSE CREDITS
Many businesses are conducted through branch houses, each in
charge of a local manager. Customers are supplied by the branches.
THE CREDIT ORGANIZATION
19
and it is customary to have each branch house collect its own accounts.
Weekly reports of the business transacted, including sales, collections,
and stock on hand, are made by each branch to the home office.
Location
Card isswftd
Amtof Credit
Report5A3fted
Received
Odte of
fi&ture of Report
Credit Orented
flemarNs
Order
Contrect
^■nc'5
6anK»
Agbc's
A^Rept.
6ood
Fair
Poor
Date
Amt,
1%rm5
Fig. 9. Card Record of Reports Received and Credit Granted
Duplicate accounts, made up from these reports, enable the home
office to Keep in as close touch with each account as though collections
were made direct.
Acfdrass
Cm/t/ogad af Dafe £sf-/mafed /ncome
RspufaHon for Pay/ng
Pay us in fha Pasf Limif of Credif A/hu/e.d
ft
Fig. 10. Credit Card for Retailer's Use
Large concerns, operating many branches, have found by ex¬
perience that it is best to pass on all local applications for credit at
20
THE CREDIT ORGANIZATION
the home oflBce. This work is handled by a division of the credit
organization, known as the branch house credit department.
The forms shown and the system described herein were designed
for the use of an oil company, and are very similar to those used by
the large packing companies. \Mien a dealer wishes to secure credit
at a branch, the form shown in Fig. 11 is filled out in duplicate and
signed by the local manager. The original is forwarded to the home
office, while the duplicate is filed in the branch office, under the name
of the applicant. Folders are used for this purpose.
0RI6INAI. APPLICAT/ON FOR CREDIT
GREAT WEsrcRu On. Co-
-Bramcm ■
Rotino
Terms
1
Dafe
Dun
Brad.
Date
yAmt IR.O.
Gasa
Lub'g
RMdst WseMtsi
Memo.
Name of customer-
Business
-Tbu/n.
.Address .
Ansu/er each question ifpossib/e Write xin space if you do net knou/
/■Does heou/n rea/estatet-
zWhatisua/ue of stocA?.
Jt/taf is its ua/ue?.
-Amount ou/niny onjf-
sAny mortage on rea/estatei'—
A-Any chat tie mortages?-
Jn whose fauorl..
Jn whose favori—
s Amount of chatt/e mortages /_
6 What amount wi/t he required
-Amount of R.E./dortageifl-
7 What is standing in mmmunitij ?
B With what bank do theg- transact business ?-
9 What terms and t/mit do you suggest?
t'haue inuestigated th/s party and make ansu/er to the best of my
ability. ' ' *
Fig. 11. Branch Oface Credit Application ^
Only the lower half of this form is filled in at the branch oflSce.
The rating, credit limit, and terms are entered when a reply is received
from the home oflBce.
When the application is received at the home oflBce, the files are
consulted for any information that may have been received previously,
reports are asked from the agencies, and the decision made. The
decision is made known to the branch house on the form shown in
Fig. 12.
THE CREDIT ORGANIZATION
21
This form is made in duplicate, both the original and copy being
forwarded to the branch. The original is placed in the branch house
files, together with the application for credit. Both the cashier and
the manager of the branch sign the duplicate, as an acknowledgment
that they understand the terms, and it is then forwarded to the home
office.
Great Westerr Oil. Co.
branch houst credit derarthcnt
Little Rock Akk-
Re
Branch
Rcfenny to app/ication for credit by above:
Credit limit 4
Terms
Refined on fin^n/ino
Lub'y. Oil RMdse
Misc. Mdse
GreatWestern oh Co.
Per-
BH. Credit Manager
tlofed and recorded Castn'er
ffotecf Mnnn^or
Fig. 12. Branch Office Credit Notice
In the home oflBce, the original application and the statement of
terms granted, signed by the branch manager, are filed together. A
folder is used for each customer, filed alphabetically with sub-
divisons for states and towns. Every subsequent report and memo¬
randum of credit information is filed in this folder.
When the report from a branch house shows an account to be
past dtfe, an inquiry blank, as shown in Fig. 13, is sent to the branch.
This is in duplicate, the copy being retained at the branch house,
and the original forwarded to the home oflBce. In both offices, this
report is eventually filed in the folder with other credit information.
22
THE CREDIT ORGANIZATION
A noticeable feature of this system is that all blanks are made
in duplicate. This insures duplicate credit files in the home office
and branches It is, of course, necessary for each office to forward
to the other any special data that may be received, from whatever
source.
COLLECTIONS
The duties of the credit man are not ended when he has passed
on the credit of a prospective customer; a very important duty
follows, and that is to collect the accounts that he has placed on the
GREAT WESTER/i OIL CO.
Plftssvi Gnsu/zt all ^u^stiom after full inuesfigafion. and rufurn m f/rsf mail
Littue Rock. Ann. /a,
Your monthly roporf s/touro fho nr
is past due and if same Is not a/ready paid ure asM you
fo inueafipa/e at once, and fi/f out ffte toUou/ihy report
Haue you made a special effort fo collect fA/s account?.
What reason does fAe deAtor yiire fornofpayrny ?.
Have you Aeard any comp/aint .reyardiny manner ofpayrny?.
Has any, firm ArouyAt surf fo co/fecf an account ?.
Is Ais business ynrut?
Is Ars stocA Aepf "p*
Does Ae y/ve business proper nrranrinnf
Incase tAe deAtor rs solvent, but can not pay nour. can you yet a note,
u/itA yood security or endorses, not to run more rtnn -t/V mnnth^f
Incase you can not' complete tAr's report rntrme for next matf,
please inform tAe Head office of fAis fact, and send report as soon
as possible.
Fig. 13. Branch Oflace Credit Inquiry Blank
books. He may assign the handling of collections to another, but the
collection desk should be under the supervision of the credit man.
The handling of collections furnishes one of the most severe tests
of the ability of the credit man; it calls for the exercise of a certain
tact, not absolutely essential in any other work in business life. The
successful collector must, first of all, be a good judge of character;
THE CREDIT ORGANIZATION
23
he must be able to read character, and govern himself by what he
learns of his customer's peculiarities. He must be a diplomat, with
the happy faculty of smoothing out the rough spots, and satisfying
the chronic kicker. While using judgment in granting special
favors to the slow-pay customer, he must be able to differentiate
between the temporarily embarrassed but able and hones.t debtor,
and him who continually makes use of a hard-luck story to arouse
sympathy and gain time; he must know when to be gently firm, and
when to take vigorous action to save his house from loss.
One of the essential accomplishments of a good collector is the
ability to write diplomatic letters. Collection correspondence is
in a class by itself. The most valuable correspondent is said to be
he who can write letters that sell goods. We have no fault to find
with this statement, but prefer the way Mr. Cody puts it—"the ability
to write letters that make people do things." The collection corre¬
spondent must be able to write letters that make people do things.
In a wholesale or manufacturing business, or any business that
is not strictly local, practically all of the collections are made by mail,
hence the subject of collection correspondence becomes of extreme
importance. The extent to which letters are used is naturally
governed by the ideas of the collector; by some they are used freely,
by others as special appeals or duns only. One very successful
credit man, who has handled the collections in one of the largest
mercantile establishments in the country, gives it as his opinion that
a letter should be sent with every request for payment—even with
the monthly statement.
Except in unusual cases, specially dictated letters are not neces¬
sary; filled-in form letters answer every purpose—indeed it is claimed
by many that carefully prepared form letters, designed to meet certain
definite conditions, are superior to letters dictated in the ordinary
rush of business. Forms can be prepared for different classes of
customers, and to meet any of the contingencies likely to arise in the
ordinary business. Form letters used for collection purposes should
be exceptionally well printed, and great care must be used to secure
ribbons«that are an exact match for the body of the letter. There
is nothing more calculated to make an unfavorable impression than
a letter in which the date, name, and address fail by several shades
to match the body.
24
THE CREDIT ORGANIZATION
The exact form of the letters must be varied to suit the particular
business in which they are to be used; they will differ in manu¬
facturing, wholesale, and retail lines, in a mail-order business, or for
installment accounts. In a manufacturing business, for instance^
a letter something like the following might be sent with the monthly
statement.
Dear sir:
In accordance with our usual custom, we enclose a statement of
your account as it appears on our books at this date. Will you kindly
compare this with your records, and advise us of any discrepancies.
That we might be in a position to fill your orders promptly, we
have kept our factory running on full time during the past few months,
which has involved quite a heavy investment in material. We will,
therefore, appreciate a check from you covering the amount shown
to be due.
We will also appreciate a liberal order, which we can fill at once,
as our stocks are imusually complete just now.
Very truly yours.
Such a letter leaves a very much better taste than please remit
stamped on the statement, and yet it plainly asks for a remittance.
There is something about the letter that savors of the personal appeal,
and gives the debtor the feeling that a special accommodation is
being asked, which he should make an effort to grant.
If the first letter fails to bring a response, it should be followed
up. The second letter, following the first in about 10 days, might
be as follows:
Dear sir:
A few days ago we sent you a statement of your account, showing
a balance of $ , of which $ is past due.
Not having heard from you, we assUme that the account is cor¬
rect, and that it will be satisfactory to you to have us draw on you on
the 15th. ^ ^
In the meantime we will be very pleased to fill your order for
any of our goods that you may need.
Very truly yours,
A letter of this kind rarely fails to bring a goodly percentage of
remittances. The mere suggestion of a draft often has the desired
effect. The average merchant dislikes to have a draft presented;
he feels that it has a tendency to injure his credit with the very man
whom he may be obliged to ask for an accommodation—^his banker.
THE CREDIT ORGANIZATION
25
The polite request for an order acts as a sugar coating which covers the
suggestion of a dun, and leaves the recipient in a pleasant frame of
mind.
The second paragraph of the above letter does not contain a
positive statement that a draft will be made, nevertheless, such a
course is hinted at, and, unless a communication of some kind is
received, the draft should invariably be made on the date specified.
Tlie customer should be taught that the collector means just what
he says; any other course indicates a lack of sincerity, and gives the
customer the feeling that these notices are not to be regarded seri¬
ously.
On the other hand, it is possible to go to the opposite extreme
in the use of drafts. The writer has in mind a business man who had
a habit of sending statements of all accounts the first of the month,
without a letter, and following these with drafts about a week later.
Many times these drafts were made before it was possible for a
remittance in response to the statement to reach him, which caused
hard feelings, and the loss of many customers. It is the custom of
many firms to pay all bills on a certain day of the month—a fact
which the observant collector quickly notes, and governs himself
accordingly in the matter of sending drafts.
WTien a draft is returned, a letter should be written immediately;
and in this letter a little sharper tone is justifiable. The following is
a good sample of a letter to be used at this point:
Dear sir:
We are disappointed to find that you have allowed our draft to be
returned unpaid, as we had counted on this amount to help in meeting
our current obligations. While the amoimt of your indebtedness is
not large, the aggregate of the many small accounts makes up the large
amount outstanding on our books, and to not receive the amount
when due, causes us considerable embarrassment.
As you know, our terms are strictly 30 days net. We must insist
on receiving prompt payment when bills are due; our prices are fig¬
ured on this basis, and our arrangements for meeting supply bills
and pay-rolls are dependent on the prompt payment of bills by our
customers.
Your total indebtedness to us is $ , of which $ is
seveftl days past due. We would appreciate a remittance of the en¬
tire amount, but must insist on the immediate payment of the amount
past due. Failing to receive either a remittance or your note, by the
23rd, we will again draw on you, and shall expect you to pay the draft
when presented.
26
THE CREDIT ORGANIZATION
By the way, our Mr. Jackson reports that he has failed to secure
an order from you on his last two trips. Now if you have any cause for
dissatisfaction, we would like to have you tell us, as we are more than
anxious to please you, and would certainly appreciate your future
orders.
Very truly yours,
One point in this letter, to which special attention is called, is
the absence of the word dishonor. Technically, when a draft is not
paid it is dishonored, but the word has an ugly sound: the word un-
paid is less harsh, yet conveys the desired meaning. While it is
sometimes necessary to be quite emphatic, nothing is gained by
adopting a tone calculated to arouse the antagonism of the debtor.
The time-honored axiom that " More flies can be caught with sugar
than with vinegar," is given a special force when considered in con¬
nection with collection letters.
Naturally, these letters must be varied to suit the business, the
season, and general trade conditions. They are not submitted as
models, to be used under all circumstances, but to impart an idea—
the idea of tone, the sugar coating which is so essential in keeping the
recipient in the right frame of mind. Politely request, ask plainly
for what you want, firmly demand, but never threaten until you are
prepared to carry out your threat. This is a safe rule to follow in
handling collections.
COLLECTION SYSTEMS
In the successful handling of collections, a requisite is prompt¬
ness. There must be a system that will insure bringing collections
to notice at the right time. Without attempting to lay down specific
systems for individual concerns, detailed descriptions of systems that
have been found satisfactory in different businesses are given herein.
Duplicate Invoices. The tendency at the present type is to
regard each invoice as a separate account, and to regard each as due
at the end of the time specified—thirty, sixty, or ninety days. An
exception is found in the accounts of city customers. A wholesale
merchant may have customers in his own city who buy in small
quantities, placing orders nearly every day. The usual rule is to re¬
gard these as monthly accounts, the account for one month being
due the 15th of the following month. For out-of-town customers,
however, the first plan is found more satisfactory.
THE CREDIT ORGANIZATION
27
A certain large manufacturer, whose business is world wide,
treats each invoice as a separate account, and handles the collections
in a very simple manner. All invoices are made in duplicate, the
original going to the customer. From the duplicate, all entries are
made on the books. If special terms are granted, these terms are
stamped on the back of the duplicate invoice.
Address
Terms Rating
Date of Inuoice
Amount
Due
Letters
Replies
Draiju
Made Draf t
Returned
Final Disposition
'
Fig. 14. Collection Card for Each Invoice
When it has served the purpose in the accounting department,
the duplicate invoice is returned to the collection desk. Here it is
filed under the date on which it is due.
The file is a simple arrangement of pigeon holes. A case con¬
taining sixty pigeon holes, large enough to hold invoices laid flat,
is used. These pigeon holes are divided into two sets of thirty
each, one above the other, and each set is numbered from 1 to 30.
This number provides for filing ahead sixty days, which is the longest
credit term allowed.
In operating the filing system, the two sets of pigeon holes repre¬
sent alternate months. During January, bills due in March are
28
THE CREDIT ORGANIZATION
filed in the upper pigeon holes; in February, bills due in April are
filed in the lower case. Each day the bills due are removed from
the file for attention, leaving the pigeon hole empty for filing bills due
sixty days ahead. On IMarch 10th, for instance, bills are removed from
the No. 10 pigeon hole of the upper case; the current day's bills, due
IMay 10th, are then filed in the same pigeon hole.
Tou/n StZit-a
Mama Rating
S tract-
Bank
Terms
Date of Inuoice Amount
Statement
Draft
Returned
Remarks
Fig. 15. Card Tickler for Collections
\Mien bills come out for attention, they are referred to the ac¬
counting department to find if they have been paid. For those not
paid, statements are prepared and returned with the bills to the
collection desks. The usual letters are written, and allfpast due
bills are held in a desk tickler, that they may be followed up from
day to day by the collection clerk.
This system can be operated with the regular tickler file, but for
a large number of bills the pigeon holes are more convenient. A
modification is necessary, also, when the bill and charge system is
used. In that case, an extra copy of the invoice should be made
for the use of the collection clerk.
THE CREDIT ORGANIZATION
29
Card Tickler. A very convenient method, where it is not deemed
advisable to use duplicate invoices, is to fill in a collection card for
each invoice.
A card, printed similarly to the form shown in Fig. 14, is filed
under the date on which the account is due. Each day, all cards
filed under that date are removed for attention. The first step is to
compare the cards with the ledger accounts. If the account has
been paid, the card is destroyed; if not, a statement is sent and the
card filed ahead to the next follow-up date. All letters written and all
steps taken are noted on the card, so that in the end it presents a
complete history of the efforts made to collect the account.
/i\
li&me
Rating
Address
Terms
Date of Invoice
Amount
Account Due
Sfafcmenf Sent
/
Will Draur
Made Draft
Through
Returned
Delin<^uent Says
Written
Placed for Collection
Final Disposition
'
Fig. 16. Collection Card for Alphabetical Cross-Indexing
A slightly different form of card, which is used in the same
manner, is shown in Fig. 15.
Cross=Indexing. The same objection exists in regard to the use
of the tickler card for collections as for other follow-up purposes,
which is the difficulty of finding the cards. Every time a card is
removed from the file it is necessary to compare it with the ledger
to find if^the account has been paid.
To overcome the difficulty, a card with an alphabetical tab is
used to good advantage. Such a card is shown in Fig. 16. It will be
noted that this card bears a tab printed with the letter G. A card
30
THE CREDIT ORGANIZATION
with this tab is used for every name that commences with G, and as
all G tabs are in the same position on the card, they will be in direct
line from front to back of the file.
The cards are filed by dates, but each day all remittances are
sent to the collection desk, that the cards representing accounts that
have been paid may be removed. All cards may be found by name,
by referring to the lettered tabs, thus Brown's card will be found in
the row of B tabs.
Z 3 <*56789 10.11 IZ 13 I'*' 15 16 17 18 19
riama
Z<4 ZS Z6 27 Z8 29 30 SI
Dun Rah'na
Addr<tss
Srocfs^reefs
c;itg
Sn/e&msn
Account
Letters Written
Answers and Promises
Fig. 17. Collection Card lor Cross-Indexing by Date
Another method of cross-indexing the collection file Ts to have
the numbers from 1 to 31, representing the days of the month, printed
across the top of the card, as shown in Fig. 17. To indicate the due
date a metal tab is placed over the proper number, a red tab being
used for succeeding months and a black tab for the current month.
The cards are filed alphabetically by name, or subdivided by
states and towns, so that any desired card can be found instantly.
Each day all cards having tabs over that date are removed for atten-
THE CREDIT ORGANIZATION
31
tion. On the first of the month those bearing red tabs are referred
to, and if due in the current month, black tabs are substituted.
Monthly Statements. In some houses, it is the practice to
follow up collections on the basis of the monthly statement, instead
of treating each invoice independently. When this is done the col¬
lection record must include a synopsis of the entire account. The
Folio
tiama
Adc/resa
1
ventfleM
Draft
Paid
Wrote
Promised
to Pay
Extemfeo
Ma fur
,ty
Remarks
Datv
Amount
/nt
Vato^
Amount
Oafe
A mount
Fig. 18. Collection Card Showing Synopsis of Entire Account
card shown in Fig. 18 is used for following collections on such ac¬
counts. This form shows the date and amount of statements, with
interest added, date and amount of drafts, and dates and amounts of
payments. Other columns are provided for a record of letters,
promises, extensions, etc.
This card is handled in exactly the same manner as it would be
if used for a single invoice. While the card shown is used in a tickler,
it would be improved by the addition of the numbers across the top,
which would permit of alphabetical indexing.
32
THE CREDIT ORGANIZATION
Local Collections. Collections from local customers are usually
made by collectors. In handling such collections, a system that will en¬
able the oflSce to keep track of the work of each collector is necessary.
One large mercantile concern has solved the problem by using
the following system. This concern has a large number of customers
who make fre¬
quent purchases.
For convenience,
M — the city is divided
SXATEMENT j^to four sec-
In , Chic&qo III. ip—
thb am£^a ^ tions, one for
^ each week in the
In Account With ■ m o n t li. Each
Tm£ AmEHICAN McRCA/miECo. . 1" • I 1
section IS divided
into five parts,
representing the
days of the week
from Monday to
Friday, inclusive.
^ One collector
covers the entire
city, calling on
each customer
once a month.
Arrangements
are made with
the customers in
each section to
J— pay their bills at
a cer^in time
~ HZHZZHIZZIZ ZZm each month—
Fig. 19. Triplicate Statement for Collectors bills of all
customers in the
first section are collectible during the first week in the month.
Each customer knows, also, on what day of the week he is to expect
the collector.
Statements are made Saturday morning for all accounts to be
collected the following week.' These statements are made in triplicate,
In
THB AM£A
STATEMENT
Chic&go III..
In Account With *
Th£ AiMEfUCAM MkRCAfmi^ Co.
THE CREDIT ORGANIZATION
33
as shown in Fig. 19. Two copies are given to the collector, who
arranges them in a file according to his daily routes. One copy is
kept in the office, filed by routes.
When the collector makes his call, he receipts one copy of the
statement and delivers it to the customer. The second copy is kept
by the collector and turned in with the collection. If the customer
is not found, or if he fails to pay, both copies of the statement must
be turned in by the collector.
Each morning the collector makes his report for the previous
day. The cashier compares the collector's report with his copies
of the statements, and, as the collector must turn in both of his copies
when no payment has been made, a safe check is had on the collector.
To make the check more positive, it is the custom of the cashier to
mail a copy of the statement to those customers who have made no
payments, or partial payments, requesting them to compare with
their records and advise if any discrepancies are found. This makes
it impossible for the collector to hold out collections without detection.
Collecting from the Ledger. In many houses having no organ¬
ized credit department, the collections are handled by the bookkeeper.
When this work is added to his many other duties, the bookkeeper is
obliged to devise some scheme that will eliminate detail—^he has no
time to make additional records. His method is to follow up col¬
lections direct from the ledger.
But there must be some method of bringing the accounts to notice
when they require attention—an automatic system. The most
simple scheme is shown in Fig. 20. Across the end of the ledger
sheet—^which is loose-leaf—^numbers representing the days of the
month are printed, and metal markers, or tabs, are attached over the
due dates.
To represent different stages in the collection of the accounts,
different colors are used. When a charge is posted to the ledger
sheet, a black tab is placed over the date on which the bill falls due.
When payments are posted the tabs are removed, provided the ac¬
count is paid in full; otherwise it is moved forward to the next due
date. •After the day's remittances are posted, all sheets with black
tabs over the current date are referred to, and statements made. At
the same time, white tabs are substituted for the black.
The next step is to make drafts for all accounts on which white
0
o
1
Matne Account No. e
3
Address Sheet No. *
Date
Item
Fol.
Debits
Credits
balance
Date
Item
Fol.
Debit,
5
C
rc
dit3
B^lance
^ 5
e
7
a
9
lO
II
12
19
15
i-a
n
16
20
21
22
25
25
26
27
•
-28
30
o
0
Fig. 20. Loose-Leal Ledger Cross-Indexed for Due Dates
No. teu
Af atghf pay to the order of
C.hirAgn <0
nni/Ar.v M.
T"
And Charge to the- account of
Tub tfANTMAN Mria Ca
A
No ten
Chicago /9
Cashier
Bank .
Ff'nrf dr^ff for
: Doi/ars /
On
Tms Hantman hfr'a. Co.
Trtaa
P/ease preaeni a/_once am/ rami/ procae^a, or re/urn uri/h
» raaaona for nonpaoman/.
No /Sit
Chicago to
We have /hia </ag c/rau/n on gou, for amounf namee/ ba/our, fbrougb
-Bank
^o/iars jfl.
lio./6//
rhirann
/a
To •
D
Fig. 21. Quadruplicate Dra/t Form which Includes Letters of Advice to Bank and
Drawee
36
THE CREDIT ORGANIZATION
tabs have appeared ten days, that is, on the 10th drafts are made for
all accounts with white tabs over the 30th. Blue tabs are then sub¬
stituted for white. If the draft is returned, a red tab is substituted.
The red tabs indicate accounts past due, which are subject to such
action as may be considered advisable. This ledger sheet, with the
adjustable tabs, insures attention to collections, regardless of the
method of filing. ■
Handling Drafts. When drafts are used extensively, consider¬
able detail is involved in handling the records. Any method that
will reduce this detail means a material reduction in the expense of
conducting the work of the collection desk.
The usual method is to write the draft and register it in a draft
regord book. Then the necessary record is made on the collection
card. A draft register is used that there may be a record showing
the aggregate of drafts outstanding, and the number and amount in
the hands of each bank—where drafts are sent direct, instead of
through a local bank. The next step is to write a letter of advice to
the bank. This method necessitates writing the names of the bank,
the drawee, and the amount of the draft three times—on the draft,
letter of advice, and draft register.
By the use of properly designed forms, this duplication can be
avoided. Fig. 21 shows a set of forms designed for the purpose. A
is the original draft, B is the letter of advice to the bank, C is a letter
of advice to the drawee, and D is the office record. The draft. A,
is attached to the letter of advice, B, and is detached by the bank.
The four forms are so printed that the date, name of the bank, amount,
and name and address of the drawee register perfectly. The blanks
are properly spaced for use in a typewriter, and all copies are made
with one writing.
Copies,.4 and B are mailed to the bank, and C to the (Jrawee.
From copy D the record is made on the collection card, after which
it is filed in a card tray, under the name of the bank. This keeps
copies of all drafts sent to each bank together, and the total of all
drafts outstanding is quickly obtained on an adding machine. When
payments are made, or drafts are returned, these copies are removed
from the files. Frequent reference to the file insures the necessary
follow-up on banks that are slow in reporting.
Installment Collections. Probably the most difficult class of
THE CREDIT ORGANIZATION
37
accounts to handle from a collection standpoint is installment ac¬
counts. Payments are quite irregular, both as to time and amount, and
frequent changes of address make it difficult to keep track of debtors.
The collec¬
tor of installment
accounts must
have the faculty
of meeting and
satisfying all
sorts of people.
He is obliged to
listen to hard-
luck tales with¬
out number, and
while sympathiz¬
ing with the
customers, must
be patiently per¬
sistent. If un¬
able to collect
the dollar due,
he will accept a
half-dollar to
keep the account
active. So long
as he collects
something, each
time a payment
is due, he is in
a position to
make the debtor
feel the impor¬
tance of the con¬
tract, but let one
or tw% collection days go by without a payment, and the debtor has the
upper hand. He then feels that he can stand-off the collector when¬
ever he happens to have other uses for his money, a condition
which becomes increasingly frequent.
Contrac
nxi-o
f-tin JX/rtnuftt .41
i
Zo//e
Acfdr^s
/nstrur
Mak^ Of
n/>n4- A//\
RyA, yMENTS
Dat<&
Principe/
/nferest
Co//ec/o/-
■
Fig. 22. Contract for Installment Sales
38
THE CREDIT ORGANIZATION
An installment dealer will nurse an account to the limit, rather
than take back the goods he has sold. Once he has collected the
cost of the article, he will accept payments of almost any amount,
but it will not do to let the debtor know how lenient he is prepared
to be; at least a semblance of enforcing the contract must be kept up.
The most familiar branch of the installment business is the sale
of house furnishings and pianos. The sale of house furnishings on
the installment plan is rapidly increasing, and probably more pianos
/nstallmemt RES/STEP
k)
Cent.
No.
Natm and Address
Tofa!
Pjanos
Hfno/a
I Other
\lnsfruments
hfisc.
k
Fig. 23. Installment Contract Register
are sold on this than any other plan. Furniture dealers who4ormerly
sold only for cash or on approved credits, are finding profitable busi¬
ness among the better class of installment buyers.
Installment sales are made on contracts, or leases, which provide
that title to the goods shall be held by the seller until all payments
have been made, and that the right of possession shall be forfeited
by the buyer if he fails to make any payment when due. When the
contract is folded, the outside shows a form printed as in Fig. 22.
This particular form is used by^ musical instrument house.
THE CREDIT ORGANIZATION
39
At the head of the form is shown the contract number, amount,
date of contract and collection date, name and address of the buyer,
and the name, number, and make of instrument. Below is space
for a record of payments, divided as to principal and interest, with
the names of the collectors. ^\Tien a sale is made, a contract is made
in duplicate, the original remaining in possession of the seller and the
duplicate being given to the purchaser.
k]
no.
Amount 0-
Psymont 0.
tfsmo
Address
Sheet/io..
-Date Contract—
-Co/tect/on- Day—
. Month^
Date
Principal
Interest
Balance
Date
Principal
Interest
Balance
k)
Fig. 24. Ledger for Installment Accounts
Installment Register. All contracts are registered in numerical
order, in an installment register ruled as shown in Fig. 23. One
line is used for each contract, the particulars recorded being the date
and number of the contract, name and address of the buyer, and the
amounts to be credited to the different sales accounts. It is not
necessafy to list the articles sold, as a complete list will be found in
the contract.
The footings of the money columns are carried forward to the
end of the month, when the totals are credited to the sales accounts
40
THE CREDIT ORGANIZATION
in the general ledger. The footing of the total column, which is
the total of all installment sales, is posted to the debit of an install¬
ment contract account in the general ledger. This is a controlling
account of the installment ledger accounts.
Installment Ledger. Installment accounts necessitate a form
of ledger differing from that used for ordinary accounts. The special
requirement in such a ledger is space for recording a large number
of payments. Fig. 24 shows a form of loose-leaf ledger sheet designed
for installment accounts.
//rstallment Cash Receipts
Received From
Cortfmcf
/do
/nsfe//men/- Ledoer
ro/s/
Princio^/
//9/er<,
*
-
Fig. 25. Special Cash Receipt Book for Instailment Collections
One of these ledger sheets is used for each installment contract.
The particulars of the contract are recorded at the head of the ledger
sheet, above the name and address. The particulars recorded are
the number of the contract, the amount and date, amount of pay¬
ments, collection day, and whether payments are to be made weekly
or monthly. The body of the form is ruled for a record of payments
and balances.
THE CREDIT ORGANIZATION
41
The ledger sheets are arranged in alphabetical order, about 6ve-
hundred sheets in each binder. Each alphabetical section is separ¬
ately indexed to afford quick reference to all accounts. If the con¬
tract number only is known, reference is had to the installment regis¬
ter, where all contracts are recorded in numerical order.
Cash Receipts. For installment collections, it is well to provide
a special cash receipt book. Such a form is shown in Fig. 25. This
form is used exclusively for installment receipts, and payments are
posted direct to the installment ledger. The total cash for the day
is entered as one item in the general cash book.
Statement of Installment Ledger. From an accounting stand¬
point, installment accounts present certain difficulties not experienced
in the handling of other classes of accounts receivable. There is
always a question as to the real value of the accounts outstanding,
a doubt as to the advisability of including the total balances in a
statement of assets. A live account—one on which payments are
being made regularly—is legitimately considered as good an asset as
any other account receivable, but the value of the delinquent account
—^when payments are past due—is questionable, and if included in a
balance sheet, the nature of the asset should be clearly stated.
That the actual condition of these accounts may be shown on
the general ledger, it is the better practice to carry two accounts,
representing live and delinquent accounts. Installment sales should
be charged to an Installment Accounts Receivable account, and pay¬
ments credited to the same account, which then becomes a general
ledger controlling account of the live accounts in the installment
ledger. Another account should be opened in the general ledger
under some such caption as Installment Accounts Delinquent.
Wlien accounts become delinquent, they should be transferred by
journal entry to this account. The journal entry would be:
Installment Accounts Delinqmnt
Installment Accounts Receivable
This transfer may be made daily, weekly, or monthly, but the period
between transfers should never be longer than one month. Delin¬
quent accounts may be indicated in the installment ledger by placing
a metal tab of some distinctive color on the ledger sheet or card, or
they may be segregated by transferring them to a special delinquent
binder or file.
Dally Report of Installment Accounts
Date 19
Department ,
Department
Totals
Live
Delinquent
Total
Liue
Delinquent
Total
Uue
Delinquent
( )Amounts Foru/arded
'
~ Add
Neur Accounts Todau
Detinouents Reuiued
Totals
Deduct
Cash CollQctions
Ba lances
Deduct
Discount 1,0° Allowances
Balances
Deduct
Delinc^uent Todau
Balances
Deduct
. Delinquents Charoed off
Net Outstandina
Norc, Delinjuenta Reuiuad are added to LlUE and deducted from
DtLlliQUEtiTSi Delinquents Todatj are deducted from LIVE., and
added to DELIfiOUEtfiSi Delinquents Charged off are deducted
from DELINQUEnTS.
fiignad
M^r Collections
Fig. 26. Daily Report of Installment Accounts for the Credit Man
THE CREDIT ORGANIZATION
43
WTien a payment is received on a delinquent account, that
account immediately becomes live, and the amount should be trans¬
ferred by journal entry to Instalbneut Accounts Receivable. The
journal entry would be:
Installment Accounts Receivable
Installment Accounts Delinquent
Each day, the amount of accounts revived—delinquent accounts on
which payments have been received—should be ascertained. If it
is desired to save the labor of making journal entries daily, a memo¬
randum of these amounts may be kept and a journal entry made at
the end of the month.
\NTien a delinquent account reaches the condition where it is con¬
sidered worthless, the amount should be charged to profit and loss,
by the journal entry:
Profit and Loss
Installment Accounts Delinquent
This should be done whenever the credit man carefully exam¬
ines all delinquent accounts, which should be not less frequently
than once a month. \Mien payments are received on these accounts,
they should be treated as revived accounts, with proper credit to
profit and loss, if revived during the current fiscal period; but if,
in the meantime, the books have been closed, they should be treated
as new accounts.
It is quite necessary for the credit man to know every day how
the installment accounts are running. That he may do this, a daily
report, as shown in Fig. 26, should be made by the installment col¬
lection clerk. The report form should be in loose-leaf, and. if the
installment sales are divided by departments, the necessary number
of columns to accommodate the departmental records may be pro¬
vided.
The report is headed with the amounts of accounts outstanding,
divided as to live and delinquent. New accounts opened and delin-
quents revived are added in the live column^ and delinquents revived
are deducted from the delinquent column. Cash collections, dis¬
counts jftid allowances, and delinquents today are deducted separately
from the live accounts, and delinquents today added to the delinquent
column. Then the delinquents charged to profit and loss are de¬
ducted from the delinquent column. The balances represent the
Confracf Nq
Data
Nama
A<f</raas
Mo..
Afa/ta of /nstrumenf.
t
1
J
V
u
f
U
1?
0
>>
H)
•5-
1
•
Amount 4
Co/tectfon Data
Fig. 27. Front and Back of Collector's Card
THE CREDIT ORGANIZATION
.45
net amount of outstanding accounts, and must agree with the two
controlling accounts, Installment Accounts Receivable and Install'
ment Accounts Delinquent.
Such a report enables the manger or credit man to keep in touch
with the actual condition of installment accounts. As a rule, three
.copies should be made, one for the manager, one for the credit man,
and one to be kept on file by the collection clerk.
Filing Contracts. Some houses follow the practice of allowing
the collector to carry the original contracts, and in such cases the
contracts are filed according to the dates on which payments are due.
It is claimed that it is necessary for the collector to have the contract,
as the customer is quite liable to lose the duplicate and may ask for
particulars about the items purchased.
Thb plan is not advocated on account of the liability of loss
of contracts. If it is desirable for the collector to carry the contract,
a third copy should be made for that purpose. Original contracts
should be kept in a fire-proof safe, and should be filed in numerical
order. The most convenient file is a document file, in which contracts
can be filed folded.
Collector's Card. The most convenient method of handling
collections is to supply the collector with cards as shown in Fig. 27.
On the face of this card is a record of particulars, similar to that
shown on the outside of the contract, while the reverse is ruled for a
record of payments.
Since all contracts call for payments on certain days of the week
or month, it is very necessary that the collection cards be brought
to notice on the collection days. A simple method of providing for
this is to use a card file equipped with a set of thirty-one numbered
guides to represent the days of the month, or a set of guides printed
with the days of the week. The cards are filed back of the guides
which represent the collection days.
It is customary to divide the city into sections, assigning a col¬
lector to each section, the number depending on the size of the city
and the number of accounts. It is necessary to use as many files as
there are collectors, with an office file added for those who prefer to
pay at the office.
Every morning each collector is given the cards on his route,
on which payments are due. On his return, he turns in all cards to
46
THE CREDIT ORGANIZATION
the cashier with the amount collected. If a back call is necessary,
the card is filed ahead a day or two.
The cards in the office file are placed on the cashier's desk each
morning and payments are recorded as made. Those on which no
payments are recorded are kept on the desk, and after a reasonable
time are given to a collector to follow up.
"WTien payments have been recorded in the cash book, all cards
are again placed in the files under the next collection dates. They
are then ready for the collectors.
/?«cc/^A t/o..
LtrrLe Rock Ark
Confrscf A/o. -
Rece/irec/ of _
Dot/^fs tcb9 fo//ou/3
Piano D ®p artmcn-t
Talking Machine Departmcnl*
Bills
Rcc.
interest"
Rent"
Dray-
agc
Tunin
Pianola
Dept.
Cash
Paymt
Sund¬
ries
Bills
Rec.
Misc.
Accts
Dealers
Accts
Sund¬
ries
little. Rock m(/s/c Co.
By
Fig. 28. Receipt for Installment Collections
Collector's Receipt. Some method is, of course, necessary for
checking up the collectors, and to insure the turning in of all money
collected. A very satisfactory plan has been devised by the cashier
of a western music house, in the form of a duplicate receipt as shown
in Fig. 28. These receipts are bound in book form and jiumbered
in duplicate, the original being perforated.
The receipt is especially convenient for the customer, as it shows
exactly how the payment is to be credited. For the same reason, it
it is equally convenient for the cashier. All of the numbered receipts
must be accounted for; if one is spoiled, it must be turned in, which
provides an effective check on the collector.
MaibOrder Installment Collections. An increasing volume of
installment business is now done by mail. An established principle
THE CREDIT ORGANIZATION
47
of the mail-order business is that customers must be given an oppor¬
tunity to inspect the goods before they can be expected to make a
binding contract for their purchases. Beginners in the mail-order
field are quite likely to look on this as an impractical plan, fearing
the loss of goods, but experience soon teaches them that it is the only
plan on which the business can be successfully conducted.
When experienced mail-order men, with the courage to try out
a new idea, experimented on the plan of allowing customers to return
goods, they found that the more liberal the offer, the more business
they did. This led to the giving of an absolute guaranty, offering
to ship goods on approval with the privilege of return for any reason
within certain time limits.
As the fear of loss of goods became less pronounced, it was
argued that more liberal terms of payment could be granted with
safety—if goods could be sold successfully on the installment plan
to local customers, why not by mail? A trial proved the plan to be
practical, and now many articles are sold by mail on the installment
or easy payment plan. Goods are even shipped without an advance
payment, either the goods or the first payment to be returned within
a certain time limit.
In selling goods by mail on the installment plan, it is necessary
to secure a binding order, in which the customer agrees to return the
goods within a certain number of days, or make the payments as
specified, with an agreement that title to the goods shall be held by
the seller until all payments have been made according to contract.
The contract must also give the seller the right to recall the goods
whenever the customer shall fail to make a single payment as agreed.
The success of the mail-order installment business depends
largely on the manner in which collections are handled. Not having
the advantage of personal contact with the customer, the collector is
obliged to depend on the knowledge of the man which he gains from
references and the correspondence of the customer. But the shrewd
collector soon learns to read his man from the general tone of the
correspondence, and sometimes from the absence of communications
from the debtor. When he has learned the character of the man,
he can handle each account independently; until then, he is obliged
to follow the same line of action in all cases, depending on the law of
averages to prove the correctness of his theories.
48
THE CREDIT ORGANIZATION
Too great emphasis cannot be placed on the importance of study¬
ing the character of the man. It is only by paying special attention
to this point that the collector can learn to treat each account in¬
dividually, In the first place, the class of gc«ds sold largely governs
the class of customers from a credit standpoint. The men who buy
sets of business books are, as a rule, safe credit risks. Their training
timmz /io
R9sictenc9 Afa Pavement" Due Dafe
Business Address Reference
Bource
Price BooAs Dgfe Books senf vis.
Dsfe
Debifs
Credits
pstSnce
Bsfe
Debit^Crec/its
XT
3stsnci
V
Fig. 29. Loose-Leaf Ledger for Mall-Order Collections
and environment have a tendency to teach them the importance of
fulfilling an obligation; appreciating the necessity of maintaining
their credit standing, they will make every effort to carry out tBe terms
of the contract, or give a valid reason for asking an extension of time.
Illustrating the opposite extreme b the class who will sign a contract
for the purchase of a cheap musical instn'ment, at a high price, to
gratify a desire to outdo a neighbor, without regard to their ability
to make the payments as agreed. Such people trust to luck, and
expect to pay in promises if they do not happen to have the money.
For this reason, the percentage of profit that must be added to cover
THE CREDIT ORGANIZATION
49
the cost of collection increases, as the quality the goods and the
standard of the credit risk decrease^,,^'^
The Account. Accounts with mail-order installment buyers are
handled in a similar manner to those of local buyers. All contracts
should be numbered as received, and registered in numerical sequence.
The form of register already shown answers the purpose very nicely.
After registering, the particulars of the contract should be entered
in the ledger. A form of ledger sheet used by a publishing house
is shown in Fig. 29. This is loose-leaf, and does not differ in form
from the ordinary balance ledger, except in the particulars given at the
Bh-l/ho C^d
No.
fiositfenca
fo. Paymlf
Due Dafe
^ Books
Busmoss Address
Reference
Source
Date Entered
Price
Dafe 6ooMs senf via.
Dafe
Dr.
Cr
Ba/arce
Dafe
Dr.
Cr.
SoAnce
Dafe
Dr.
Cr
BaAnce
■
•
Fig. 30. Mail-Order Collection Card
head of the sheet. Here is shown the name and both residence and
business address of the customer, number of contract, monthly pay¬
ment and due date, references, source of order, price and name of
books, and date of shipment. These sheets are filed in post binders,
five-hundred sheets to the binder, and indexed alphabetically.
The next step is to enter the contract on a collection card. A
satisf|ctory form b shown in Fig. 30. This is a card 4X6 inches
in size, and is practically a duplicate of the ledger sheet. The card
is filed in a chronological file under the due date—that is, if payments
are due on the 24th of the month the card is filed under that date.
Except when removed from the file for the use of the collector, or to
50
THE CREDIT ORGANIZATION
enter payments, the card is always filed under the same date. If it
becomes necessary to have an account brought to notice on other than
the regular collection dates, a memo is made on a separate card and
filed in a special tickler.
Should it become necessary to refer to a card on other than the
regular collection dates, reference to the ledger—indexed alpha¬
betically—ogives the due date, by which it is quickly located. Some¬
times, however, it is desirable to refer to all contracts in a given terri¬
tory. To make this possible, a card file with indexes printed with the
names of states and cities is provided. For each contract a plain 3-X
5-inch index card is used, the name, address, and contract number
only, being entered. This provides a complete set of indexes—
alphabetical in the ledger; numerical in the register; by due dates
in the collection file; geographical in the card file.
When a payment is received, it is entered in the cash book and
posted to both the ledger and the collection carch Every card must
be located at the time payments are entered in the ledger, or the cus¬
tomer will very likely receive notices after he has made the payment.
The Collection Fonow=Up. The promptness of the follow-up
on this class of collections is of the greatest importance—the debtor
should not be given the excuse that he failed to received a notice.
Though not provided for in the contract, the debtor expects a notice
of every payment due.
Wlien the goods are shipped, a formal notice of shipment should
be mailed, and if the first payment has not been made, it should be
requested. In ten days, or after the approval time limit has expired,
a second notice should be mailed, provided no payment has been
received. This can be a formal notice, and should assume that the
goods are entirely satisfactory, and the same time calling attention to
the fact that the first payment is past due. If this does not ||jring a
remittance within ten days, it is well to send a draft notice. This
notice should go into the conditions of the contract in some detail,
and, without assuming a threatening attitude, it should assume that
if payment is not received within five days it is the desire of the debtor
that a draft be made. Either the notice or the draft will usually
bring the first payment, or the return of the goods.
Each month, a formal statement showing the exact condition of
the account should be mailed a few days before the due date. It is
THE CREDIT
ORGANIZATION
well, on this statement, to
make an offer of a discount
for cash to pay the account in
full. A discount of 5% on an
account that has several
months to run will often be
accepted, and is profitable to
both parties. This statement
should be followed in ten days
by a second notice, also of a
formal nature.
All notices up to this
point may be printed, but fur¬
ther requests should be in the
form of letters. Except when
it has been found that an ac¬
count should be handled in a
special manner, form letters
will be found most satisfactory.
The letters should start out
mild in tone increasing in insist¬
ence as the series is extended.
When persuasion fails,
the debtor should be notified
that the account is being
placed in the hands of an
attorney, or a collection
agency. But before suit is
actually started, it is well to
investigate the probability of
collecting a judgment. If a
man is judgment proof, it is
much better to take the neces¬
sary steps to secure the return
of the goods. This is usually
accomplished by requesting
the express company to call on
the debtor for the package.
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52
THE CREDIT ORGANIZATION
Every debtor has his vulnerable point; if that point is reached,
the money can be collected. The most successful collector is the one
who finds that point in the largest number of cases.
Collections by Attorneys. The handling of collections consti¬
tutes an important part of the practice of many attorneys. It would
naturally be supposed that attorneys handling collections for their
clients would have an eflScient system of records, but unfortunately
this is not the rule. Except in offices handling a large number of
claims the methods are very lax—there is an entire absence of a
Debtor
Address
Date notified
Creditor
Address
Amount
HeoXt from Sent to
Address
Date No.
Cot/e cfions
Rees
Remitfanc e s
Dnte
Amount
Correspon¬
dent
Our
Date
Amoi
jnt
Remarks
Fig. 32. Attorney's Collection Card
system that will reveal the exact status of every claim. And yet to
install a system that will give just the information desired is very
simple, and the operation requires less labor than to handle the
claims in a haphazard way.
When a claim is received by an attorney, it should be given a
number, and registered in numerical order. The register shoflld be
a book—either loose-leaf or bound—^with headings for the date re¬
ceived, names of debtor and creditor, amount of claim, amount col¬
lected, fees, amount remitted, and date remitted or returned, as
shown in Fig. 31. This is not intended as a complete history of the
claim, but merely as a permanent record.
The papers in each claim should be placed in a folder. The
old method was to use a manila jacket or document envelope, to be
THE CREDIT ORGANIZATION
53
filed in a document file. The objectionable feature of this method
is that the papers must be unfolded for reference. A better plan is
to use a correspondence folder, such as is used in the vertical file, in
which the papers can be kept flat.
Whatever style of folder is used, all papers should be fastened—
either pasted, or by means of a paper fastener. On the outside of
the folder should be written the names of debtor and creditor, and the
number of the claim. The balance of the space on the folder can be
used for recording special information about the claim from time to
time. These claim folders should be filed numerically, according to
claim numbers.
Csuse of scfhn.
Court
Counsel H/rr.
Defl:
Summons hsue^
Continuance
Judgemen f-amount
Returnable
Officer
Costs
Serveot
Fees
Transcript
Execution issued
Officer
Receipts
Oe/iuered.
Fees
Disbursements
Returned
Remarks
Fig. 33. Back of Attorney's Collection Card
For a convenient record for daily reference, giving a brief history
of the claim, a card is found very satisfactory. The folders are some¬
what bulky and inconvenient for quick reference, and, except in
special cases, it is not necessary to refer to all of the papers. Brief
notes, which can be made on a card, will answer every purpose.
A convenient record form is shown in Fig. 32, which is printed
on a cwd 4X6 inches in size. This gives the particulars of the
receipt of the claim, the amount, date, and number, with a record of
collections, fees, and remittances. A card is made for each claim,
and filed alphabetically under the name of the debtor. The reverse
54
THE CREDIT ORGANIZATION
of the card is printed as shown in Fig. 33. This shows the different
steps taken to enforce collection.
The card file provides an index to all debtors against whom
claims are on file, while both the register and the file of folders provide
numerical indexes. But it is the creditor who is the client of the at¬
torney, and it is very necessary that he be in a position to refer to or
report on all claims received from any client. This necessitates
another index to creditors, which is provided for in the card form
shown in Fig. 34.
Cra&i^or
AMrass
/Vq
Dabfor
Returned
■
Fig. 34. Index to Creditors lor Attorney
The card is headed with the name and address of the creditor,
below which is a list of all claims filed by him. When a claim is
returned—paid or unpaid—the date is entered on this card, so that
the record shows only unpaid claims. These cards are filed alpha¬
betically, under the names of the creditors. ^
A follow-up of the claims is provided by a plain index card on
which is written the name of the debtor and number of the claim.
This card is filed in a tickler, under the date on which it is desired to
follow up the claim. This serves as a memorandum only, all records
being made on the claim card or the folder.
EXAMINATION PAPER
THE CREDIT ORGANIZATION
Read Carefully: Place your name and full address at the head of the
|>>[ier. Any cheap, light paper like the sample previously sent you may
1" used. Do not crowd your work, but arrange it neatly and legioly. Do
iKil copy the answers from the Instruction Paper; use your own words, so that
tc( may be sure that you understand the subject.
/
*
^ - -4^ 1. In respect to the general classes of information required
!■> the credit man, how would you divide the subject?
2. Name the two factors which govern the credit risk, and
■•-.ate in what respects these factors are of importance.
. 3. Analyze at least three of the items which make up the
st 'tement shown in Fig. 1.
H Discuss the character of the information about his cus-
tf riiers required by the city and country retailer.
What are the principal sources of credit information?
I -fi. How would you suggest obtaining information through
1(M al sources? Show form of report you would expect from a local
, rrespondent.
•4^. To what extent can the salesman be expected to supply
ricdit information about his customers? What form of report would
' I II expect him to submit?
WTiat do you consider the best method of filing credit
' 11 formation in a wholesale house having two thousand customers in
> States?
' "1^9. Illustrate a suitable card form for a transcript of credit
' I. i^yination for the above-mentioned wholesale house.
—10. Describe a system of handling credits for a corporatioij
lose goods are sold through branch houses, illustrating the neces-
y forms.
• 11. Describe a system for following up collections by means
duplicate invoices.
/'
/
THE CREDIT ORGANIZATION
-^"12. Explain how a card collection system can be arranged
^dicate the names, the cards being filed according to due dates,
filed by name, how can the due dates be shown?
Illustrate a form of collection card suitable for a busii >
^omj^wn choosing.
i4. Describe a system for handling the local collections (>
mlesal^ house, illustrating the necessary forms.
How can collections be followed up directly from the led.
founts?
16. ,Describe a system for keeping the accounts and handJI
the collections in a house selling furniture on the installment pi'
{rating all necessary forms.
'17. Discuss the special factors to be considered in handli
^tallment collections by mail.
,A-4r"18. What general ledger controlling accounts of the installmi
Imger are necessary? Explain the sources of entry to these accouii
/el. 19. Describe a collection system to be used by an attorr*
ilmstrating the necessary forpis.
After completing the work, add and sign the following statemei
I hereby certify that the above work is entirely my own.
(Signed)
3 5556 003 067
Commerce
.23 2.7
A5122