When these comments are received at the central office, a report is prepared embodying the sum of the information obtained. Each member receives a copy of this report. No names of informants appear upon these reports, such names being known only to the central office. For the sake of convenience, let ters of the alphabet and abbreviations of words are employed in conveying this credit information.
7. Inherent defects of credit clearing.—Nearly ideal as this plan appears to be, there are neverthe less features which to a considerable extent limit its usefulness. For example, it will be seen after a mo ment's reflection that a system of credit interchange in order to be of sufficient practical value must be participated in by the larger portion of possible credi tors. To illustrate: If the number of possible credi tors selling a certain line of goods in a certain market is one hundred, and if of this number only ten, twenty or thirty participate in the interchange system, it follows that the volume of information obtainable under such circumstances is insufficient to cover fully the credit dealings of a buyer in that market. As is readily seen, the farther below one hundred the total membership is, the less complete will the returns in this case be and the less valuable will be the inter change as a source of credit information. Con versely, the nearer to one hundred the number of participants is the more complete will the informa tion be, and the greater also will be the value of the information obtained.
It must also be remembered that the larger the mem bership the more numerous will be the inquiries; hence the more arduous the work of furnishing the informa tion asked for. It is easily conceivable that if the membership in such an association continues to grow, a point will sooner or later be reached at which the work demanded of each member in connection with the answering of inquiries and the expenditure of time and labor incident thereto—perhaps the entire time and service of a clerk—will be found to be out of proportion to the benefits derived. When that point is reached, the system plainly becomes impracticable.
In that case, the membership is automatically reduced to a point where the system is once more workable. This automatic limitation seems to indicate that the ordinary system of "clearing" ledger information will hardly attain universal application. When it is re stricted to one or to merely a few markets, however, there is no ground for questioning the value and prac ticability of the system, always provided that the mem bers live up to their agreement and treat one another fairly.
8. The Credit Clearing House.—The Credit Clearing House is, without doubt, the chief exponent in this country of the system of obtaining credit in formation by means of ledger experiences. Estab lished about 1890, this agency today covers about 500,000 retail merchants in its investigations.
Each member of the Credit Clearing House is re quired to register with that agency the names of his customers and to contribute information whenever any of his customers are under investigation. In each case the member receives a copy of the report summarizing the information contributed by the other interested members in addition to that contributed by himself.
The ledger facts sought by this agency are gath ered from every important market. Merchants are given an opportunity to submit their financial state ments in order that the contents of such statements may be added to the other information contained in the report that is sent to inquirers. The report in its entirety is made up of the facts thus contributed 1 and possesses the merit of being free from the bias of personal opinion.
9. The percentage has shown that one of the chief items in such a report re lates to the subject's manner of paying his bills. An index to his manner of payment is arrived at by the use of percentages. Thus, if out of twenty-five re porting houses, ten say that payments are slow, this fact appears in the report as follows: "25 payment experiences, 40 per cent slow." If earlier reports were cleared, their percentages are also given in order that it may be shown whether the merchant is doing better or worse. To illustrate: A certain New York merchant failed in 1915. In the agency's records the percentages in his case read as follows: Another important item covered by the Credit Clearing House report is the attempt to buy an un usually large amount of merchandise. Such an at tempt is also recorded in the form of percentages. In the eve of a house that failed, the amount of new credit sought was 63 per cent. It has been found that if a dealer is slow with more than 70 per cent of his creditors, failure is likely to overtake him at any moment. A climbing percentage of new credits asked by the merchant also draws attention to a weakening condition.