COOPERATIVE METHODS IN CREDIT INVESTIGATION 1. Credit cooperative methods.—Within recent years, many wholesalers came to feel that despite the excellence of the service usually rendered by the large mercantile agencies with their extensive organiza tions and with the ramifications of their investigating system there was a certain element lacking, namely a convenient way for creditors selling in the same market to exchange ledger experience. While the two large agencies endeavor to furnish a certain amount of trade experience, it was felt that their present plan of operation does not permit them in this respect to meet completely the need of the bus iness world.
Accordingly, efforts have been made within trade lines to distribute information obtained from the led ger experience of the members of such trades, and various bureaus have been established for the pur pose of facilitating such exchanges.
The purpose of an interchange system, as set forth by an officer of a leading agency, is to provide "an impartial medium between debtors and creditors and between creditors themselves, and to establish a sys tem whereby those who are interested in any accounts may freely and unreservedly interchange the facts contained in their ledgers, without the necessity of direct reference, each to the other; without divulging this information under their own name; and at all times receiving in exchange for items contributed by them the combined experiences of all the others in terested in the account." 2. Characteristics of ledger experience.—As will be seen, this form of credit information differs ma terially from that supplied by the ordinary credit agency, for the interchange of ledger experience does not concern itself directly with antecedents, or with the dealer's character and reputation. It does not even take into consideration the size of his capital. Such an interchange system takes account solely of the subject's recent purchases and payments. Thru information submitted by other members, an inquir ing member may usually learn whether his customer has placed orders with other houses, how much he is owing on account, and whether he is meeting his pay ment obligations with due promptness.
In the judgment of experienced credit men, this form of information constitutes the most valuable basis of credit extension at present available to the manufac turer and the wholesale merchant. It is now pretty well recognized that the record of a dealer's purchases and payments, provided it is sufficiently complete, affords more material for intelligent credit analysis than the combined testimony of agency ratings and reporters' opinions. Obviously, the value of such a system depends chiefly upon the extent to which the selling houses participate. At first, considerable dif ficulty was experienced in inducing merchants to participate in an exchange of ledger information. They were loath to give out information about their customers for fear this information might be used in some way to the detriment of themselves or their customers. Of late, a more enlightened view of the matter is being taken, and as a result this method of investigating credit risks is rapidly gaining favor.
3. Procedure in the exchange of ledger in form of such credit interchange is that which is carried on between dealers without the inter mediary of a central bureau. The form shown on this and the preceding page has the approval and recom mendation of the National Association of Credit Men and is one that is frequently used for this purpose.
The two blanks, as will be noted, are identical save for the lines at the top. The first is filled out by the inquiring member, who thereby shows his willingness to give information as well as to receive it. This inquiry, together with the second blank form, is thereupon sent to the house of which inquiry is to be made. The latter promptly enters upon the second blank and in the spaces provided therefor, the information in its possession and returns this form to the inquirer.