INSTALMENT SELLING IN GREAT BRITAIN Instalment selling has proved an invaluable aid to certain young and some old British industries since the World War. It is un likely that the motor, wireless, electrical equipment, pianoforte or furniture industries would be in their present healthy state, had not instalment selling come to their assistance. For long years past, the British building societies have fostered the wise plan of buying houses on the instalment system and their growth has been remarkable. (See BUILDING SOCIETIES.) Estimates of Extent.—How far instalment selling is respon sible for sales in the wide range of industries it serves, no one can estimate. British industries collect few data for such a computa tion. The Hire Purchase Traders' association has estimated that 4,000,00o instalment agreements are entered into annually, and that 16,000,00o such agreements were in 1928 in force. The asso ciation also estimates that instalment agreements account for 50% of motor-car sales ; for 5o% of furniture sales; and for I o% of jewellery sales in Great Britain. These figures are- given with reserve ; they are rough estimates and nothing more. It is clear, however, that a large percentage of the farm implement, factory equipment, office machinery, bicycle trades and a small percent age of the clothing, bible and bookselling trades is done on the instalment basis.
Certain other services seem to be suited to the instalment method of selling. One of these is insurance, which has been sold to the British working classes by weekly payments for half a century or more. One company is selling life policies to the middle classes on the monthly payment system, while another has announced its intention of following suit. Travel is being sold in the same way. One of the British railway groups is to sell holiday tickets on instalments, collecting sixpence or a shilling weekly. The British income tax is collected in instalments.
One is often asked the question : by how much will instalment selling increase sales? The answer depends on the nature of the article, the type of public appealed to, the terms offered, the state of competition and other factors. A specific case will illustrate the possibilities of the method.
The Remington Typewriter Company offered their portable typewriters on the instalment system in April 1925, their terms being an initial payment of £2 2s., followed by II monthly pay ments of Li is. Taking the sales for the six months preceding this offer at the index figure of I oo per month, it was found that the index of sales had increased in Oct. 1925 to 210, in November to 269, and in December to 325. In eight months instalment selling had increased the sale of portable typewriters by over 200% while the newspaper advertising for the eight months was only about 5% above that for the preceding six months.
The social reformer is apt to assume that the temptation to reckless buying is greatest to the poorest. It may be so, but the fact remains that the ability to budget expenditure—and here lies the crux of the question—seems to vary in proportion to the shallowness, and not the depth, of the housewife's purse. The Frenchwoman buys more carefully and expertly than the Eng lishwoman, while the latter makes money go farther than the American housewife. It is probable that the danger of instalment selling to the working-classes in Great Britain has been exagger ated.
On the other hand, it cannot be too clearly recognized that with instalment selling a new situation has arisen. The balance of power as between salesman and customer has been upset. While Mrs. Brown may be quite competent to deal with her local shopkeeper, she may not have the skill to cope successfully with the travelling salesman or with the salesman of a department store. A superior technique of salesmanship may be opposed to an inferior technique of buying. In such circumstances, there may be cases in which the housewife is tempted to purchase beyond her means.
Until 1928, instalment selling was managed on a more con servative basis in Great Britain than in America. While the American banks only attempted to set standards of practice in 1925, the long experience of British business and the conserva tive policy of the British banks have secured a cautious policy; factors of safety have been operative.
At the same time, it has to be admitted that one or two British industries are now leaving these standards of practice behind them. Certain firms for instance are now working on the "no deposit, long term agreement" system. As most of the companies concerned are large and possess corresponding financial resources, there need be no need for anxiety in their interests. Inevitably both they and their customers must pay a little more for the facilities offered : how much, is a matter of accountancy.
In 1928 the facilities available for the small trader to give his customers instalment terms were multiplying in other directions. A number of manufacturers were prepared to finance the instal ment sales of their dealers on a reasonable basis; a few whole salers in certain lines offered the same facilities; and the banks themselves ceased to protest that they would not finance instal ment sales. This change of attitude was sponsored by the Midland Bank in its Bulletin (Feb.–March 1928) in the following terms:— The banks, in the ordinary course of providing direct accommoda tion to their own customers, probably provide a considerable part of the funds required for carrying on hire-purchase business. This does not imply that the banks actually lend specifically for hire purchase trade, but in the ordinary course of operation of their overdraft facilities, substantial sums, though unidentifiable in detail, are probably lent for this purpose. Similarly, the banks are called upon from time to time to lend large amounts to finance the opera tions of manufacturers, some of whom may be producing partly or wholly to meet the hire-purchase demand. In these cases again the banks are indirectly financing this particular type of business. Conse quently it would be wrong to say that the banks do not grant accommodation for hire-purchase business, merely because they do not hold themselves out to participate in exactly the same way as in America.
How much does instalment credit cost? The financing company may charge 5% to 8% on each transaction for 12 months' accom modation. Obviously, the actual rate of interest paid is 1 o% to 16%, since the average amount on loan is only half of the total. It must be remembered, too, that the retailer is normally charging his customer from 5% to 8% for the credit given so that the net cost to the retailer is trifling. It will be clear, however, that the instalment method of selling entails the use of greater capital in relation to turnover than cash selling.
See also TALLY. (C. CH.)