Experience based upon the observation of a large number of failures shows that the failure level is reached when slowness of payments approximates 80 per cent. If new credit is also involved, the failure level is reached when the combined percentages of slowness and new credit reach 120 per cent.
Where new credit is the sole disturbing factor, re ports of new credit asked from more than 60 per cent of the houses inquired of call for careful scrutiny of the situation. Where this percentage is distinctly favorable, little fear need be felt as to the safety of the account ; but when it is not so distinctly favor able, the detailed report should invariably be ex amined.
Except in the smaller markets, it is rarely neces sary that all a dealer's creditors be included in such reports. Information from a representative body of creditors generally serves every purpose.
When the demands for new credit are found to be unusually numerous, the Credit Clearing House calls special attention to this fact by suggesting to its members that a report should be consulted before further credit is allowed. At the same time, the dealer himself is asked by the agency to explain his increased demands, and this explanation, if at all per tinent, is sent to all interested members.
10. Giving credit Credit Clearing House offers to interpret its reports for the benefit of subscribers and on the basis of such reports to ren der credit decisions on cases submitted to it. This service is, perhaps, of more special value to manu facturers whose business is not large enough to warrant the employment of a professional credit man.
The membership of the Credit Clearing House is said to embrace more than thirty lines of trade and to cover the chief manufacturing sections of the coun try.
11. A probable credit interchange system of the future.—It seems to be fully within the domain of probability that a system of credit interchange, ca pable of national if not of international application, may ultimately be adopted, and that thereby the ends of trade may be fully served without the necessity of imposing a burden upon the participating mem bers.
Such a system has, in fact, been tried in a small way, sufficiently, it is believed, to prove that it is thoroly workable and efficient. Among other fea tures it contemplates making inquiries obligatory whenever certain circumstances arise. It also de
mands that each inquiry be a report, in the sense that it shall contain one or more items of information af fecting the credit title of the person or firm in ques tion. Tho it is not feasible here to describe this plan in detail, it may be said that the reasoning upon which it is founded is somewhat as follows: 1. Relevant credit information in the matter of commercial transactions is that which deals only with abnormal transactions.
2. Abnormal credit transactions, as that term is here used, includes the seeking of new credit as shown by the placing of first orders or of materially in creased orders.
3. Delinquency—the owing of past-due accounts— constitutes another abnormal transaction or condition, and is therefore relevant credit information.
4. Where information covering abnormal transac tions is promptly conveyed, all information relating to merely normal transactions, such as the buying of goods in the usual quantities as measured by past dealings and the paying of bills according to terms of sale, is riot relevant credit information, since it is of no particular value to the inquiring credit giver.
5. By eliminating all normal or purely favorable information, more than nine-tenths of the total vol ume of credit information which is now being col lected and distributed, may be dispensed with, and the work of the credit department thereby be made correspondingly lighter, simpler and cheaper.
6. The cost of participation in such an interchange system may be made so low as to constitute no bar rier whatever to an entirely free use of the system, so that no unfavorable symptom in the debtor's con dition may escape the creditors' notice.
From the foregoing the reader will see that under this system the files of the central office will not be burdened with information recounting normal credit transactions, such as regular purchases and regular payments. The only source from which the bureau's information is drawn is the members' inquiry tickets, which in turn record only abnormal credit data, as just described. This being the case, it follows that the central office will have less than one-twentieth of the usual mass of credit information to care for, by which fact alone the workable limits of the interchange system are automatically enlarged some twenty times.