16. Payment methods.—The outward and direct evidence of the possession of financial ability, as that term is here used in connection with the retail mer chant, is of course promptness in meeting financial obligations. That is why as a rule the applicant's "payment habits" are so carefully inquired into by the intelligent credit-giver. An untarnished credit reputation is indeed one of the greatest assets a busi ness man can have. Once this credit title becomes clouded or impaired it is extremely difficult if not im possible to restore it to its former condition.
Injured credit has aptly been compared to "a broken piece of beautiful porcelain; you may put it together again and it may seem as good as of old, but the cracks are there and you cannot forget that it was broken." 17. Financial strength.—From the foregoing con siderations we conclude that where both technical and financial business ability are present and sufficiently indicated, the credit-seeker has a strong claim to be considered a desirable credit risk. But even with such ability fairly marked, his credit title will be much stronger if he also possess capital sufficient to afford a guaranty of paying ability in the event that mis fortune of one kind or another should overtake him. Business contingencies are so numerous and so diffi cult to anticipate that a certain amount of reserve in the form of realizable assets is necessary if the risk is to be acceptable to a conservative creditor. That a dealer's assets should exceed his liabilities is a neces sary condition of his legitimate commercial existence.
Unless they do he is insolvent, and as such without the possession, of any credit title whatever.
18. Convertibility of even greater im portance than the relation of assets to liabilities is the degree of their convertibility. Some assets, such as building and fixtures, are not readily convertible into cash and are therefore termed "slow" or "fixed" as sets. Salable merchandise and goods receivable, whether in the form of book accounts or notes, are usually turned into money without much difficulty and are therefore called "quick" or "liquid" assets.
A comparison of quick assets with slow assets will show the amount of the dealer's active capital, and will indicate with considerable accuracy to what credit accommodation the dealer is entitled. Even the quick
assets, however, shrink considerably when an attempt is made to realize upon them by means of a forced sale. In the case of slow assets, such shrinkage is at times considerably in excess of fifty per cent. Par ticularly is this the case with the equipment of a manu facturing plant. Such items as tools, patents, spe cial machinery and fixtures, while they may be worth their full valuation to the busineSs in which they are employed, usually are of little value elsewhere, and at forced sale bring but a small portion of their original cost.
It is a matter of common observation that mer chandise is convertible into cash in direct proportion to its nearness to a state of raw material. It is much easier, for example, to turn wool or iron into money than it is to convert clothing or hardware into money. The explanation is that since manufactured goods arc in a special and narrower class than the raw material from which they were made, their utility is restricted, and hence their sale is effected with greater diffi culty.
19. Liquidating values.—In some lines of business, assets may be converted into cash with less deprecia tion than in others. While it is not possible in any given case to determine in advance what may be real ized by forced sale on a stock of goods, the following table will serve as a guide in approximating the liqui dating values in u few important lines of trade: 20. Capital—how acquired.—While at first glance it may seem a matter of little importance how a deal er's capital was acquired, yet on closer consideration it is seen that this after all has a direct bearing upon his credit title. Five thousand dollars in the hands of a man starting in business is not nearly so much of an asset if it was inherited, as if it was the result of frugality and saving on the part of the merchant himself. During the years it has taken him to save up that sum, the merchant will have learned thru self denial and frugal living to know the value of money, and the knowledge thus acquired is not likely to desert him when he starts in business for himself. He is al most certain to continue his practice of frugality and is accordingly not likely to spend his hard-earned dol lars foolishly.