Trade 'Acceptances

A radio address by !4r.Arthur w. Moore, vice President of the ookirand Bank, Oakland. The article is ertrernely interesting and comprehensizte, and is of particular aalue to lumbermen.

I am very sure every busincss man listeninc in tonicht at Eomc timc or other has th6ught that his financial problcms would bc grcatly simplificd if hc did not havc to extend credit to his customcrs. But customcrS demand credit, and bctwecn 85 and 90 per cent of all busincss transactions are on a credit basis. The problem, therefore, has becn to dcvise some way to release the enormous amount of money that has bccn tied up in open book accounta. Thc Trade Acceptancc was designcd for just such a purpose.-Since the introduction and development of the Tradc Acceptance, 6ome misconccptions of its ourpose and its usc have arisen. These misirndlrstandings have done a great deal to rctard the'use of Tradc Acceptances, and, in fact, havc brought it into disrcpute with somc buycrs and scllers and with some banks. Whatevcr the faults we have chargcd againct thc Tradc Acccptance, I believe I am safe in saying that they arc not thc faults of the instruncnt, but thc faults of thosc who have impropcrly employcd it Firet of all let me explain what thc Trade Acccptance is and how it originatcd. The Tradc Acceptancc is a draft drawn by the seller of mcrchandise on thc purchaser for thc valuc of goods sold and dclivcrcd, which draft, rnade payablc on a ccrtain datc and at a dcaignated placc, ie accepted by thc buycr. So that I may be perfcctly clcar, cvcn to thosc who have never sccn a Trade

Acceptancg lct mc morc fully describc the apccimen I hold in my hand. In general appearancc it rcecmbles a bank check. In the qpp* right-lrand corner it i6 datcd Oakland, California, _January 9, L925. It thcn gocs on to say: "On March 12, 1925, pay-to thc o,rdcr of ourselves $510. The obligation of the acce-ptor hereof arises out of the purchasc of goods from the drawcr, matu:rity being in conlormity with thc original terms of purchase." It is signed by the Jones Company, John Jones, President. In the lower lcft-hand corner it says, "To the Smith Company, Cleveland, Ohio." Across the facc of thc draft is writtcn the words. "Acceoted January l+, !925, payable at thi Clerreiand Bank of Cleneland" Ohio," followed bv the oficial-signaturc of the Smith Compady. In this particular casc, when the ioods pcre forwardcd by thc Joncs Companv of Oakland to the Smith Company of Ctiveland. thc shippers drew the drift -whictr I havd just rcad for the amount of the bill and mailcd it with thcir invoice to the Srnith Company. Although thc Smith Company. upon rcceipt of the draft and invoicc. louid have paid thc bill, lcss the discouni. they chosc to accclrt thc draft. After acce6tanci. thc Smith Company rcturned the diaft t6 thc Jones Company herc at Oakland. Instcad oj having an opcn booL- account, the Jones uomlxlny now has a piece of ncco_ tiablc papcr. The Jones Company may tdcp th_e acceptance until a fcw days beforc it fdls due, and thcn send it out for collection, or immediately upon receipt they may discount it, that is cash it, at their bank. Bccause thc Trade Acceptance is the obligation not-only of the house selling the goodi, but of the purchaser as well, it il morc desiiablc from the- banker's stand-point than the plain note of the seller.

, The usc of Trade Acceptances is not en- tirely new with us. Prior-to the Civil War this form of paper was more or less in general use. Following the Civil War, however, the financial and trade disorganization made it rather h-azardous to grant the long credite to which American business houses -were accu8tomed. Instead, a systcm of liberal cash discounts was adopte4 which became vcry popul,ar and led to thc open book account. In Europe practically all commcrcial tranEactions are financcd by mcans of Tradc AcccptanccS.

Thc Trade Acccptance is not a promissory note. A note ordinarily is used 1o borrow -moncy, or ir given in scttlcment of ovcrduc account!. The Tradc AcccDtance plainly 8tate8 that it is drawn bv thc-sellcr on thc purchaser for the pricc of-coode sold. and it thercforc should not be givCn for borrowed moncy. Nor should it bi used in scttlcmcnt of past due accounts. The cardinal

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A new sedeE of pattcnrr for you to urc in creeting profiablc buriner.

5 in. and 7 in. in round edge, rquarc cdgc and bevel edge patternr.

Practically as thicfr u 3/t, siilkg at trittle more rtan cost of 5/g".

The ba'el eilge pattern apecially gites a iliterat and. vcry pleasing efect.

Tra rrlrrsr genuine whitc pinc pattcm lumber corncs from Califoinia,^whcrc it is known as California Sugar Pinc. Thc Forest Products Laboratory, Ma& ison, Wisconsin, rccently issucd a bullctio stating that thcre are but thrcc gcnuinc whitc pines of commercial guantiry, of which Sugar Pinc is one, and to quotc the olab.'is proof posi .tive,-oThcrc is absolutelynopositivc ncaus of idcntifying these thrccwhitc pincs one from anothcr, microscopically."

Some users prcfer wide, thick, clcar stock, while others like to cut upfactory of even common lumber, according to the charactef of pattems they requirc. The cuttings from Sugar Pine shop or common havc idcntical values with the material in thc sclcct gradcs.

Spacc will allow but an outline of theSugar Pinc grades adaptablc topattern work, as follows:

In the ordcr of quality arc: No. 1 anil 2Cleat or B Select aod Better, which grade is clcarin widths under l0 inches, butinwidcrwidths admits onc or rwo small defects, such as a small knot or light crossing stain, suitable for the highest type ofpattcrns; C Selcct; aud D Select. Thcy are cut from the outsidc of the loi and arc comDaradvcly frcc from dcfcits, thccforc cionomicil to usc thc wholc piccc.

Pattern lumber."

Valuablc chieflv for cuttins uD Durposes, are: No. 3tlcarwhidyiefds a Iarge perccntagc ofclear cufttngs. surcabli for high {'uality pattcrns 6fiargc clmcnstons.

No. I Shop, which yiclds a considcrablc numb6r of cleir cuttings both targc and small, valuable for Suilding up patterns as somc prcfcr to do. No. 23hop and No. 3 Shop havc DroDortionafcly,lesr "ogjingsl both ,if lirgc anc small slze.

At least four of thc fivc common gradcs ofSugar Pine are useful in the pattern shop. These arc No. l, No. 2, No. 3 and No. 4Common,whichhave been carefully described in Dreccdins advertisem6nts. No. I is csoccialli good for Datterns. No. 2 for both oaiIems andflasks, No. 3 for flasks,'and No. 4 for crating and boxing.

California Sugar Pine lumber is available in thc foflowine nominal thickncsses, cither rough-or drcsscd:

Selcct gradcs arc random or soccified widths.Shop from s in. wide to za in. and up; Corimon {rom 4 in. widi to 12. tn. of over.

Lcngths ofSugar Pine run strong to 16 foot which makcs this lumbcr particulady dcsirablc for pattcrn making.

(Continued from Page 24) principle of thc rhole Trade Acceptancc plan is that thc acccptance shall rcpresent cur- rent transactions only. This fact has bccn ovcrlookcd by many who havc uscd Trade Acceptances instead of notes, whcre they granted extra timc on IEst due accounts. There are a numbcr of advantagcs in the Tradc Acceptancc systcm, not only to thc seller, but to tfie purchaser as wcll. I have mcntioncd that under the old plan of oocn book accounts thc seller ties uo a srcat 6art of his capital for an indefinitc -timel A credit pcriod cxtcnding from thirty to ninety days is usually grantcd. As a matter of fact, a gr6{rt many customcrs take additional time for paymcnt. For this additional timc, as a rule, thcy do not pay intcrest. It is quitc general for business concerns to carry butltanding accounts on their books from 50 !g 100 .per ccnt morc than they would carry if ^all bills wcre paid promptly-in accordancc with tl|e terms of the sale. By eubstituting Trade Acceptances for open book accounts-, t!o! gnly will the buycr's obligations have a definite and fixcd maturity, bui thc scltcr ac- quires an asset that is readily convertible into cash through discounting-at his bank. By making thesc funds available for rcinvestment in his own,business, hc can transact the samc volume of busincss on a much smaller capital, or he can expand his business.

While the Tradc Acceptance plan prcsulrposes paymcnt at maturity, with no reaewals or cxtensions, settlementC by thig method do not preclude any merchant from granting extfa timc to the customcr. Whcre it is desired to grant such additiond tirnc. a purchaser can make irrangements for this cburtesy bcfore his acceptance matures. If the cxtra. tirne is _grantcd, thc seller, gcncrally Epcakrng, would takc a notc from thc cus- tomcr for the amount due. The note. of course, would bear intercst. If the Trade'Acccptance has been discounted at the bank, thc sellcr would make paymcnt to the bank or arrange to discount the notc of thc customcr.

Under the book account systcm, the seller not only loscs the intcrcst for the timc his accounts arc ovcrduc, but he is burdencd with the cost of collecting slow accounts. Any merchant who has analyzcd his business, could not be otherwise than astounded at thc time, thc cnergy and thc expcnse re- quircd for his organization to follow up customers who are slow pa.y. I am reminded of the business man in the North who had a number of vcry slow pay customers. He hircd a Swcdc collector to follow up these delinquent customers. Thc collector-s first assignment was a man named Browrq a par- ticularly hard casc. Ifpon returning frorn-his call he rcportcd that Brown prbmised to pay ncxt January. His cmployei was highly pleascd, and complimcnted thc collcctor. He remarkcd that a dcfinite promisc out of Brown was more than anyone had been ablc to gct, and asked the Swedc how hc succcedcd. The reply was, "I yust ask for pay- ment and Brown said it -would be a iola day beforc he paid thc bill, so I thought that would be some time in Yanuary."

Thc_ buycr, by giving a Trade Acceptance payable at his banl knows full weU that he cannot afiord to jeopardizc his credit standing by negligence. Hc will cxert every effort !g pay his obligation, and to pay on time. If the Tradc Acccptancc accomplished that and nothing else, it would have more than carncd the right to thc whole-hearted sup- port of cvery business man interested in improving business practices.

!f eliminating thc slow account, the loss suffcred through commercial failuris wilt be less. Under thc Tradc Acceptance DlatI. it will not be possible for buyirs to a-ccurirulate a pile of long-standing debte, as undcr the present system.

Some buyers havc a disposition to make claims of all kinds. Sometimes these claims arc cntircly unjuat. I lnow of a clothing manufacturer who had the rcputation amon! piccegoods houses for making claimr for shortages even beforc the goods werc dclivered. Claims of all kinds are an cvcry-day occurrencc in the business world-claims for imperfections, inferior quality, breakage in transit-ad infinitum. Often a claim serves as a cloak to gain extra time for paymcnt. When the buyer givcs his Trade Acccptancc for the purchase, he knows he must honor that paper when it falls due. He will not be pronc to refusc paymcnt on the grounds of some fanciful claim, and thc disputes between buycr and seller will decrcase,

Now let us look at thc matter from ttrc buycr's standpoint. I admit that so far I may havc given you thc imprcssion that the Tradc Acceptance is primarily to hclp make the buycr walk thc chalk mark.

Thc buycr who settles by Trade Acceptance will enhance his general business and credit standing. When a busincss man is known as prompt pay, hc is in thc preferred class. He obtains merchandise as against slow-pay customers, when there is a shortagc of goods. Hc gcts better deliverics, he obtains better prices by giving Trade Acceptances. He virtually purchases on a cash basis as far as the seller is concerned. By being able to purchase at the best prices, hl is better able to compete with the stronger concerns in his line of business.

One of thc principal causes of busincss failures in this country is overbuying. The buyer who gives Trade Acceptances knows he must meet them at maturity. He, therefore, is more careful in his purchascs, and becomes a better merchant, to his own bene- fit and to the benefit of the communiry at large. More careful purchasing will also rcsult in a decrease in the returncd goods cvil, another thorn in the side of business.

Now that I have presented the advantages

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