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Credit Practice in Representative Lines Of Business 1

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CREDIT PRACTICE IN REPRESENTATIVE LINES -OF BUSINESS 1. General observations.—One of the first things that impresses the student of credit management is the dissimilarity between the credit terms in various lines of business. In one line we find terms of thirty days, in another twelve to eighteen months and in one line the credit period even reaches three years! In some instances the interval between seasons determines the credit period. In some lines certain articles are sold on four months while others are sold on thirty days. Again, among manufacturers or wholesalers within a given trade we sometimes find one who quotes certain credit terms, while another, less than a hun dred yards away, sells the same class of goods on en tirely different terms.

Despite this irregularity certain general rules with regard to the length of credit given in the various lines of business are apparent. For example, we note, first of all, that if the business is seasonal, as in the case of ladies' garments or millinery trade, settlement for purchases is generally made twice a year—spring and fall. Where the commodity is in demand the year round, or where its sale is not greatly affected by the seasons, payment periods come more fre quently, as a general rule. Articles that afford a lib eral profit margin are usually sold on longer terms than those that are sold on a smaller percentage of profit.

Products for immediate consumption, such as arti cles of food, are almost always sold on short credit terms, perishable food being sold practically on a cash basis. Nearly everywhere, however, one finds con siderable latitude not only in the matter of terms given but also in the degree of strictness with which custo mers are held to the terms agreed upon.

The credit terms that obtain in some of the more prominent lines of trade are briefly discussed in this chapter. It should be remembered, however, that local customs and peculiarities frequently effect ma terial changes in credit terms. The following de scribes the credit customs that are preyalent in the larger cities of the East.

2. Customary credit terms in the grocery business.

—The wholesale grocery business is compelled per haps more than any other line, to deal with a large number of untrained and otherwise incompetent re tail merchants. In our larger cities, particularly, where there are large foreign sections, many of the grocery stores are in the hands of foreigners who have little or no knowledge of the English language or of American business methods, when they begin business. As these merchants rarely have any capital worth mentioning, they necessarily depend upon credit at the hands of the wholesaler for the goods which they buy and sell. As a result of these conditions, the abuse of credit terms is common in the grocery trade, and the return of goods for no valid reason is also a frequent occurrence. These strictures, however, do not apply to that large number of intelligent and businesslike retail grocers that, are found in nearly every community.

Speaking from a credit standpoint, we may say there are three classes of goods sold by the wholesale grocer. The class which constitutes the larger part of the goods sold in groceries includes what are called "shelf goods." Such goods are generally sold on terms of thirty days net, one per cent discount being given for cash in ten days, or as commonly written, 1/10/30. In some sections, however, this class of goods is sold on terms of sixty days net and one and one-half per cent discount for cash in ten days, or 10/60.

The second class is made up of such articles as butter, eggs and (usually) sugar. On these goods the terms are thirty days net and no discount fdr cash. Sometimes when sugar is sold along with "shelf goods," it is sold on the same credit terms as the latter, that is, with a discount for cash payment. The third class consists of teas, and these are generally sold on terms of three to four months, with a discount of 3 per cent for cash within ten days. It follows, therefore. that a single shipment of groceries may have to be billed in three different ways, as when the goods shipped include the three classes here enumerated.

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