Sometimes the returns are made by drafts on clearing houses. Many business men think that if it takes two days to go to a certain city, a check on that place should be paid and in the bank's hands within four days. They do not realize that under our sys tem of independent banks, each one must make ar rangements for the most advantageous collection of out-of-town items and that sometimes, even with the best of arrangements, it may take five days to collect an item payable at a town that can be reached in two days. The item must be received and passed thru the books of the bank to which it is sent. The de positor should give the bank plenty of time to collect all items before issuing checks against the deposits.
It is the only safe way. The bookkeepers are charged with the responsibility of referring to the officers all checks that are drawn against uncollected funds and this is a fact which the depositor should bear in mind.
The length of time required for collecting out-of town checks is discussed at some length in the chapter on the Clearing House.
17. Accommodation that is surety for a stranger shall-smart for it; and he that hateth suretyship is sure." It would be well for a business man to bear in mind this proverb when trying to decide whether or not he should lend his name to help a friend. In the eyes of a banker, accommodation indorsement is an un desirable security. Let us examine a situation in which a request for accommodation indorsement might arise, and see how the entire transaction ap pears to the banker.
A dealer in hardware has used up all his credit in the trade, that is, he has bought all the goods that he can buy from the house from which he usually makes his purchases. His account at the wholesaler's is due, but he has an unusual demand for new stock. He is therefore compelled to pay cash. He has no borrow ing account at the bank, since he has always preferred to hold off his creditors as long as possible rather than borrow to discount his bills. He must have the money, however, and so he goes to one of his neigh bors whose credit is never used up and who is in good standing at the bank, and asks him to assist in raising the needed money by indorsing his name on a note. The neighbor does not like to make him self liable in this way and tries to decline. The hard ware man feels that the unwillingness to indorse his note is a criticism of his standing in the community, and ill feelings are the result, even before the note goes to the bank.
At last the hardware man persuades his neighbor to give the required indorsement and he goes to the bank with the coveted piece of paper. An accommodation indorser is liable on the note to all parties except the person accommodated. The fact that he has received no consideration does not make any difference. He has indorsed to lend his credit to the paper and he may be held even by those who know his indorsement to be an accommodation and without consideration.
Altho the banker knows the maker's condition, and knows that there is a possibility that he may not be able to pay the note at maturity, he does not wish to offend the indorser. After due hesitation he makes the loan to the hardware man, but notifies the neigh bor that he is held responsible for the note.
It may be stated as a general rule, that accommoda tion paper of any class is not a desirable bank asset. The bank depositor who values his credit-standing will remember the proverb quoted, as well as the fact that this practice does not raise him in the estimation of his banker.
18. Inquiries at the bank.—Bank credit is valuable for a business man, especially in a community of moderate size, where every man is acquainted with his neighbor. Banks are frequently requested to give information regarding the credit-standing of their de positors. While they guard carefully against giving details about a man's business, they must, of course, give some answer to the inquiries made. The value of a person's account with the bank, the nature of his business, his business methods and his general stand ing in the community, all have an influence on the banker when he makes his estimate. Even a small account, if properly handled, is well spoken of by the banker. When a depositor files a statement, the banker is always in a position to give information based on facts, if he has made a complete investiga tion of the borrower's credit-standing.
No man can prevent his creditors from asking ques tions about him, nor can he prevent his banker from telling what he knows. Suppose a business man should go to his banker and say: "Of course, you are called upon from time to time to answer inquiries regarding your depositors, and I know that you are careful not to divulge confidential information, but I wish that hereafter you would refuse to give any in formation or to express any opinion whatever regard ing me." Then, suppose that a creditor of this busi ness man follows him to the cashier's desk and makes a direct inquiry, to which the banker should reply, "Well, Mr. Credit Man, I would like to oblige you by giving you the information, but I have been in structed by Mr. to say nothing about him or his credit-standing. If you will ask me about any other of our depositors, I shall be pleased to help you all I can." The credit man would make every effort to find out what the banker knew about the credit-stand ing of this merchant, and if he failed, he would report to his house and instruct them not to ship any more goods to Mr. Merchant until he should have an op portunity to make further investigation.
One's credit-standing at the bank should be guarded with care. Misunderstanding, however in significant, should not be allowed to open a breach be tween the banker and the depositor, for the changing of an account may hurt the depositor as much as it does the banker.