THE COLLECTION DEPARTMENT 1. General collection principles in a wholesale house.—Every credit transaction, as we have seen, is in the nature of a contract, by the terms of which the seller surrenders title to merchandise or other val uable commodities in •return for a promise of pay ment to be made on or before a specified date. Ac cordingly, not until such payment is made has the buyer carried out his part of the contract; not until then is the seller again in possession of his capital; not until such time is his profit on the transaction ac tually enjoyed.
A good collection policy demands that this con tractual feature be kept constantly in view, yet ex perience shows that frequently it is neglected. Great laxity commonly obtains in the matter of making re mittances in accordance with the terms of sale. For that reason, efficient collection methods are indispens able to the success of business in which goods are sold on credit. In the case of a manufacturer or whole saler, the collection department is an invaluable ad junct to the credit department.
Even with the best of equipment, and with the ex ercise of the most diligent effort, credit losses cannot be wholly prevented. In nearly every wholesale business, however, it is possible by means of proper credit management to keep such losses within a frac tion of one per cent of the yearly sales. It must ever be the credit man's aim to reduce the percentage of losses to the lowest possible point, so long as he is not thereby unduly restricting the volume of credit sales.
The proper time for the credit man to consider whether an account will be promptly paid is before that account is opened. Undoubtedly, it would greatly simplify the work of the credit department if early attention were given each account. "How much credit do you wish?" a certain merchant was in the habit of asking every applicant for credit. The latter would mention the amount desired and the length of time for which it was wanted. "All right," the merchant would say; "I'll grant you all that you have asked, and in order that there may be no dispute later, I will enter the date right now and here on your account in the ledger. But now that I have agreed to
your terms, I want it understood that you are not to ask me for any extension. I shall expect you to live up to the terms which you yourself have made." This is unquestionably a correct attitude on the part of the credit-grantor, and it is in perfect accord with the collection policy here recommended. Prompt payment of accounts due is never to be regarded as a favor or to be referred to as such. Plainly, it, is no more a favor for the debtor to remit promptly than it is for the creditor to ship the goods according to the terms and conditions of sale.
Nor is there any doubt that the house which in sists upon receiving prompt payment is more highly respected by its customers than its easy-going com petitor. Usually the former is paid on time, while the latter has to wait. Experience shows, moreover, that , the maintenance of a prompt-payment policy drives away no desirable trade. The points to be observed in the adoption and maintenance of such a policy are simply that a thoro understanding of the credit terms which are to govern the sale are had before the order is filled, and that no deviation from these terms be per mitted, save for perfectly valid and mutually satis factory reasons.
2. Three causes of delinquency.—When an account remains unpaid after the date of its maturity, it is called a collection, and as such becomes subject to handling by the collection department. In the larger houses, this department is generally distinct from the credit department and has its own head, who works in close association with the credit man. In smaller houses the joint functions of credit man and collec tion manager are usually assumed by one man.
If a customer fails to pay his account at maturity, one of three causes is responsible: 1. Carelessness.