Financial statements provide excellent comparative data to judge a firm's growth, drift, and possibilities and its rank among competitors. These statements will become more and more use ful as uniform accounting methods are adopted in any trade, and numerous factors at present are tending to bring this uniformity about. As yet banks find it necessary to reduce the various financial statements to comparative statement forms, and if any information is needed on the form besides that on the finan cial statement, it is gathered by special investigation.
The applicant borrower is also benefited by the requirement that he prepare and submit to his bank a financial statement. It necessitates better and more careful accounting, and this helps him manage his business more efficiently, for he knows the details, discovers sources of losses that would otherwise be hidden, and aligns himself with modern accounting theory and practice. The bank's credit man checks up his reports, gives suggestions and correctives, and thus serves as a sort of auditor for him. The banker is in position to advise him in the financial conduct of his business, which otherwise he would not be, for fulness and accu racy of data are prerequisite to sound advice. The banker, know ing intimately his customer's business and having advised about its conduct, is more likely to feel the obligation of supporting him in need. The banker is in a position to advise others authorita tively about his customer's credit. The customer is likely to be more conservative in his ventures when he knows that his banker will insist upon reviewing his operations.
2. Mercantile Agencies—Organization A second source of credit information is the mercantile agency. A mercantile agency is an organization whose business it is to ascertain the credit position of banks, corporations, firms, and individuals and to circulate this information among its members and subscribers. These agencies are of two classes: the special agency, which limits its field of operations to one or a few lines of trade, as textiles, furniture, and the like, and the general agency, which covers approximately all lines and has a large and compre hensive organization. Mercantile agencies are the most uni versally used and probably the most influential source in the credit world in general. The most important general agencies are Dun's, Bradstreet's, Ellis', and Seyd's. Some of the special agencies are the Jewelers' Board of Trade, the Leather Trade, Special Reporting Company, Best's Insurance Reference Books, and Bishop's.
The organization of the general agency is built to conserve time in reporting, to adapt itself to local conditions, and to be per manent. The country is divided into districts, each district corn prising a few counties and having a central office at which the data are assembled and transmitted to the main offices. Branch offices are established in foreign countries and in our territorial possessions. Each district office has traveling reporters who cover their respective territories, call upon merchants and other business houses, procure financial statements, references, etc. These references and others are consulted, and the figures on the statements are verified if possible. Local correspondents are engaged everywhere, who report on new mercantile or other houses set up, on items that may affect the credit standing of the old merchants, on lawsuits, mortgages, and deeds recorded, etc., which might affect credit titles. The local correspondents and the traveling reporters act as checks upon each other. The re porters become experts along certain lines, and in larger cities some are delegated to follow one trade or kindred trades alone, others to report on conditions in the financial districts as found by circulating among banks.
Services of Mercantile Agency The agency sells its service to subscribers for a period of years. The service takes several lines but primarily consists of: (I) reports on certain parties about whom the subscriber makes inquiry, and (2) ratings of capital and credit of practically every business concern in the country. After an inquiry is made by a subscriber about a certain person, the agency makes an initial report and follows it with advices about news of bankruptcy, assignments, foreclosures, lawsuits, suspicious transfers, pledging of accounts receivable, mortgages given, securities issued, and fires and serious losses that may affect the credit title of the subject.
The reports are inclusive and cover the history of the firm and of its officers; the names of its officers and directors; summaries of previous financial statements; full details of the latest statements, with comments and criticisms by the agency; the character, habits, and business capacity of the concern and its officials; comments on the place of business, its equipment, location, busi ness outlook; credit standing, the opinions of other houses of the trade dealing with the subject concern as to the subject's manner of payment, his punctuality, etc.