Credits and Collections

I presume that Chairman Falconbury picked me to lead this discussion for the reason that during his association with The Modesto Lumber Co., the major part of my work was devoted to credits and collections and also perhaps because we were somewhat successful in our efforts, not through any unusual ability on my part, but rather because of diligence by this department in keeping constantly on the job and using every possible effort and care in opening accounts and collecting the money afterwards.

There is a considerable amount of discussion at the present time as to what extent credit can be successfully handled in the lurnber business. In this present day, we find that other lines of business are conducting various methodb of extending credit. This is particularly true in the case of furniture dealers, automobile dealers, implcments, musical instruments, including radio, and more lately such lines as clothing. This necessarily increases the field of competition and makes the going of we merchants, who endeavor to do practically a cash business more difficult, for while we are endeavoring to sell a new home to a prospective customer for cash, these other lines through the medium of their high powered salesmen approach our customers and show them how easy it is for them to have any of the commodities which I have mentioned. on an easy payment plan requiring practically no pa5rment down. In our line of business, so far as I know, this method of merchandising has never been attempted to any great extent and it still remains a question as to whether or not a lumber business could be successfully conducted along these lines. There is one thing certain however, we lumber dealers would be obfiged to make a considerable longer mark ufr on our merchandise if we were to attempt extensive credit, It is my opinion that it can not be done at the present time.

In my discussion today, I will attempt to handle the subject only along the lines by which dealers have been operating in the past; that is, conducting as nearly a cash business as possible but extending short terms of credit for th€ purpose o-f accomodation and convenience to their trade. We are told that goods well bought, are half sold. It is my contention that accounts well and carefully made are more than half collected and it is just as important to collect the money after making the sale as it is to make the sale in the first place; therefore, a lot of careful attention must necessarily be given to the opening of accounts if we expect to be successful in our collecting. We are oft times too eager to make a sale, losing sight of this second most important necessity' In larger firms, the sales and credit departments usually operate separately and independent of each other and in this we find ihe greatest danger because a sales force under the direction of a peppery and energetic sales manager, are constantly on their toes using every possibility to make a sale and too often the credit department is not advised or consulted until after th€ account is opened, which very often proves disastrous.

Chairman Falconbury, probably had in mind the years of 1919 and 1920, which, as you all know, were probably the two biggest years in volume of sales in the history of the Retail Lumber business, and I want to say that jf Chairman Falconbury is half as careful in handling his account at the present time as he was in seeing that I attended to my job during those two years, he indeed has a very clean set of books.

I will give you some figures on the results obtained during those two years because during that time I was working mostly on acr counts and because of the heavy volume during that period. Without telling you what our sales were during those two years, I will state that at the end of l9l9 we charged ofi nine accounts, aggregating $8E3.1Q of which $866.69, was collected dqring the following two years. At the same time, we charged off six notes aggregating $1682.19, of which $1675.80, was collected during the following two years. At the cnd of l92O we drarged off eleven accounts aggregating $1356.06, of which all was collected during the following two years. At the same time we charged ofi two notes aggregating $509.76 of which one amounting to $134.76, has not been collected because of the fact that an honest farmer took advantage of our bankruptcy law before I had an opportunity to make the collection. These figures are not being presented in a spirit of braggadocio, nor, were the results obtained due to any unusual ability, but they certainly show the result of constant care and attention when given to this work.

Ordinarily we figure that sixty days business on our books, is keeping our account! in good shape. It might, also, be interesting for you to know, that during these two years of heavy volume, our accounts were very often down to thirty-eight and forty days. Thcre are, of coursc, difrerent classes of accounts and for the purpose of discussion. f wiil divide these into four classes: lst: What we might call counter customers, asking for a limited credit on a limited length of time and where the risk might be termed, purely a moral risk. These are accounts where the applicant may not necessarily own any property and where the o'nly security is his daily wage or salary, whatever the case may be.

2nd: The counter customer asking for the same type of credit but who owns property usually incumbered but ofrering some security for an account.

3rd: The custom€r who is about to construct a building, who has secured a loan for the purpose, a building loan, bank loan, or otherwise.

4th: A type of customer we might consider gilt edge, having propcrty and being generally consi{ered a good moral and financial risk.

In dealing with these first two classes, I would say, that there is no set rule by which any one could be guided in passing on their credit. Each application should be handled as an individual case and treated strictly on its merits. We know it to be a fact that there arc no two human beings who are exactly dike and it is almost cqual- ly true that the status. of no two accounts aie exactly alikc. I have here a card which has been prepared for the purlrcse gt filting out applications for credit and which we have used durrrg the past three or four years. However, f do not believe that it is necessary to get all the information asked for on these cards, in most cases, but I will name what I consider the fuqdamental essentials .in getting information for the purpose of passing on credit. First, there should be a thorough understanding between customer and merchant as to the transaction. They both should know how much 4o!eJ thc iccount is going to amount to, and, it is my suggcstion, that if a prospeclrv! pqrclraser asks for credit on material for the construction of a certain building' that an estimate be made as to the amount, before granting the request, because too -often, if ihis is not done, the debtor will afterwards make the excuse that he did not know the account was going to be so large. It should be thoroughly understood that if it is to be a sixty diy iccount, that it is-to be -paid in sixty dayi and not to run ninety days or longer. ft is well to cross question the aIL nlicant and ask him if there is not some irior oblication that mav prevent him from -handlins t-his account in- sixty days. If this is done, he will usually re-inforce his assurance to such an extent that it would be a difficult mattcr for him to havc an excuse instead of the money.

Second, it is most important to get the D'ropcr address of thc ap'plicant. I personally' ioniider the address of more importance than the name when it cornes to an account, for the reason, that if you have thc address you can always locatc your party and any crror in initial or name can be eas'ly corrected. It is also important to get the correct name and initial, also. correct spelling of the name. fn addition to name. and address, olace of residence should follow, for very iften, they may reside in the country and get their'mail through a Post Office box. If th9 applicant is a propcrty owner, the location of pi6perty should be seoarately given, as hc may reside in one localig and own property in lnother. and in some cases not get his mail at either place. Always get the information as to whether thc applicant owns or rents his property. If an owner, the amount and kind bf prooerty that he owns, whether he has legal-title or is purchasing -on contract. In either case, thc amount of incumbrance. It is also well, to ask for references to other firms with whom he has had credit. This is particularly important if he has recently arrived from some other locality. Later. theie references should be checked, and a rating obtained through thc medium of a Jocal credit bureau. if there is one, It has alwaye been our policy to get a ratigg on cvery new account, irrespective of how well we may linow him, or how long he has bccn in thc community, and wc vcry often meet with some surprises as rcgards people t'hat we know vcry well. Very reccntly there was a man applied to us for crcdit for materials to construct some buildings, in which the matcrial would run five or iix hundred dollars. Ife was a man who had been in business in Modesto and who claimed he owned twenty acres of land near Modesto, also, some additional land on the West Side. He claimed to be a prominent poultry man and the showing that he made looked most favorable and it look reasonable to extend thc credit that he asked for. In fact, so much so, that the speaker practically assured him that his requcst would be grantcd. However, in checking up through the credit bureau later, we found that there.was an attachrnent suit pending against him and that several merchants \pere at that time trying to collect accounts from him and that he was considered absolutely unworthy of credit. _ We probably saved enough moncy in this one instance to p€y our dues in a credit bureau for several years. Some mcrchants are hesitant about asking for information, fearing that it may ofrend the cqstomcr. We have found that in most cases a man who pays his bills promptly is proud of the fact and is always willing and ready to grve all the information asked for freely. Also if he does take ofrense it is well to check up on him very carefully. It has always been our practice if we have any difficulty in collecting an initiaf account that we refrain frorn re-opening a netr account with the same party. Merchants very often allow themselves to come into further grief against their better judgment by taking a chance the second time. I have in mind one case where we opened an account amounting to alF proximatclg $30.00 for thirty days. It took several months to make the collection. He Iater wanted some more matcrial and we refused him credit. He then wcnt to one of our oo,nrpetitors and recolved credit; after- wards this competitoi was obligcd to filc a Iicn against this party's property and eventually took over the propcrty. I will venture that thc.competitor didnt make any money on thc transaction. In anothcr instance, the accounts of two corttactora proved uniatis- factory. On account of ouf persistent effort in making our collections tliey trent to a competitivc firm who readily sold them material and in one casc after this competitive firm was obliged to file liens they again sold this contractor materials on a large building which is now two years ago, and, so I am told, are still waiting for their tnon€y amounting to $2000.(X). ft is my opinion that it is much better to be considered tight in the matter of granting credit than to have the reputation of being constantly suing to collect accounts. Again, I consider the trade has more rcspect for a firm that is careful than they do for the one who is inclined to grant credit prorniscuously and they will take pride in the fact that they can go to the firm who is particular and receive the accommodation thcy ask for, and I believe that any adverse advertising a firm may get through being careful will be ofrset by an equal or greater amount of good advertising and it is almost an undisputed fact that the so-called dead beat will avoid the merchant from whom it is difficult to receive credit, and will fock to the oncs, who, as they say are easy.

Nationality: Wh'le I do not want to convey the thought that a merchant can be guidcd by the nationality of an applicant, it is true that characteristics of people of different nationality makes them a good or bad risk, but, in every case, with exceptions. For example, in our. Community, which runs strong to the dairy industy, we havc quite a Swiss population and while we have had a great many accounts on our books with Swiss people, f do not know of a single instance where we have lost a dollar on an account opened with a Swiss, and so far as