THE RECIPROCAL VALUE OF A SIGNED STATEMENT Good credit in the markets of the world enables every merchant to add to his ability to do business. It gives him the use of enlarged capital, thus enabling him to carry a more complete stock, increase his sales, and magnify his profits.
Large assets are not always necessary to the creation of credit; what is most desirable is, that credit be in relative proportion to the actual assets, and in harmony with conditions which create and maintain it. A merchant's capital is the sum of his net available resources, plus his credit. The giver of credit is a contributor of capital, and becomes, in a certain sense, a partner of the debtor, and, as such, has a perfect right to complete information of the debtor's condition at all times.
Credit is given a merchant because of the confidence reposed in him. Requesting a statement when credit is asked is not a reflection on one's character, honesty, or business ability, but is done to secure information to enable business to be conducted intelligently.
When a statement is made it should be absolutely correct. To make it so necessitates the taking of at least an annual inventory and the keeping of an accurate set of books. Statement giving, therefore, will tend to make a debtor a better buyer, because more familiar with his stock, more careful in giving credit, more conservative in incurring debt, and will result in a better knowledge of his business generally.
A merchant who desires to serve his own best interests should recog nize that his most valuable possession, apart from his actual assets, is a sound, substantial and unquestioned reputation as a credit risk, and that, under the prevailing conditions and demands of business, the most effective, and eminently the best way to prove his basis for credit, is to be willing to submit a statement of his financial condition.
The types given as examples for commercial houses were selected from a series of forms recommended by the National Association of Credit Men. The items appearing upon these forms are substantially alike. tho their arrangement differs somewhat. Note par ticularly the paragraphs describing the reciprocal value of a signed statement. They show that the
Association of Credit Men seeks to educate the com mercial world to recognize and conform to the stand ards demanded by a sound credit policy.
8. What the property statement should tell.— Among the things which a property statement should make clear, or which the credit man otherwise must endeavor to learn, are the following: 1. Is the capital sufficient, and has it been con tributed in cash? If not, in what does it consist? 2. Who constitute the firm, and do the partners understand the business? 3. Is the stock listed at a fair valuation, and has proper allowance been made for depreciation? 4. Has a fair allowance been made for doubtful credit, and have all bad debts been written off or otherwise provided for? 5. Do liabilities appear to be disproportionately large? To whom and for what have liabilities been assumed? 6. Is the buying reasonable in amount? A further consideration of the financial statement will be found in another chapter.
9. A recent statement form.—It is interesting to note the efforts that are made by credit-givers to provide a statement form that shall afford no loop hole for evasion or for wilful misrepresentation. A recent form devised by the Liberty National Bank of New York is a good illustration of the tendency in this direction. The bank provides three forms, each adapted to one of the three principal forms of business, i. e., individual, partnership and corporation. In substance, however, these forms are alike.
The form for individuals is reproduced on the fol lowing pages.
10. Salesman as a credit reporter.—Among the earliest sources of credit information about a retail merchant was the report furnished by the salesman who visited him in his store and sold him a bill of goods. At first glance it may seem natural to com bine in one person the offices of salesman and credit man. In practice this is usually undesirable. Be tween the two functions there is often a wide gulf. The self-interest of the salesman frequently places a distance between the firm and the customer which the resources of the credit department are unable to span.