Explanation of Workings of Credit in Business, and the Risk of Poor Fire Protection and Service to the Creditors

“GOOD evening, Chief. Had a big day?

“Only a couple of little ones, eh? That’s swell. It’s almost too hot to get close to the big ones today.

“Yes, our business is pretty good, in fact a nice percentage ahead of last year in sales, but collections aren’t so good.

“Your question is one many people fail to properly interpret. In our business we must at all times keep the money coming in according to terms sale. As a good illustration, one large firm I know about has stated that if they granted an increase of only one day in their terms, it would require $25,000,000 additional capital; interest charges alone on this would amount to $50,000 per day!

“You ask me ‘what is credit?’ The question is simple. Credit is the lifeblood of all business. Our large business institutions would be helpless without it and it has been estimated that if all credit were to be done away with, that business would be where it was 200 years ago. A good example of how credit works could be in the manner in which you are paid your salary.

“Your city paymaster gives you a check, which transfers credit your city has in its bank to you at your bank. You pay your bills, say, rent, groceries and clothes, giving checks to your creditors, which transfers your credit to them. They will in time transfer a part of their credit at the bank back to our city in the form of check, paying; taxes. You can now see the circle all this credit has taken and bear in mind no cash money has changed hands: it is all a matter of credit.

Credit Is Power

“There isn’t enough money in circulation to take care of ten per cent of modern business, as we understand it today. Credit might also be termed power. It is the power to obtain present goods on the strength of an obligation to pay for them in the future.

“We must be systematic in our Credit Investigation Division. We have sources of accurate information without which extension of credit would be extremely hazardous. Our information gives name, address, trade style (if any), history, financial statement, fire hazard, fire record, record of insurance coverage as well as a very complete record of payment. All of these are very important and necessary. We credit men thoroughly analyze these records, and like you size up a fire, we size up an application and each case stands alone on what we are able to determine in our size-up. Credit is based on character, capital and capability, commonly called the Three C’s of credit. Obviously, if one of the C’s is missing, you can see the risk is greatly increased.

Many Factors to Be Considered

“From your viewpoint as head of our Fire Department there are many factors credit executives cannot afford to overlook. Many accounts are located in the smaller cities, town and villages where fire protection is totally lacking or badly inadequate. Even in many of our large cities, where, for reasons you and I both know so well, protection is not so good, the insurance premiums are so high that the average small merchant cannot afford to be fully protected. In the average small grocery and meat store, fixtures will represent an investment of around $2,500, while stock, to be reasonably complete will cost $1,500. To many small operators this represents their savings of a life-time, and in more cases that you’d expect, borrowed money. We know many a successful small merchant who started with only a few dollars of his own and by practicing the Three C’s of Credit, is well fixed financially today.

“To illustrate my point about insurance, several years ago I called on a potential new account in a small town near here. Subject’s building was a corrugated-iron clad wooden structure, badly exposed on three sides. His stock and fixtures represented an average investment of $3,000. That year his sales were $15,000, and he earned for himself, $1,200. He carried no insurance, the rate being so high that it would have cost him $105 per year premium, which he could not afford. But where do you think his creditors would have been in event of a small fire? In this town there was no water main larger than one inch. In spite of the fact that there were at that time over 25 business firms in that town, their only protection was from the time-honored bucket brigade.

“In event of a fire, this man would have lost everything, including his source of income; his family would have suffered, and from a credit standpoint, the amount owing various creditors would have been a total loss along with his stock and fixtures.

Need for Trained Personnel

“In our field we are trained and paid to prevent such losses, just like you are so trained and paid to conduct your Department so the losses will be as small as possible. This man was highly insulted when I refused to open an account with him, but after I explained our position and the great risk under which he was operating, he saw the light and immediately got busy. Today, eight years later, this little progressive city has excellent protection from as good a volunteer company as I have seen in many years of travel all over this part of these fair United States.

“Another community near here recently took advantage of relief funds and built a swell little fire house. They bought a new triple-combination pumper of modern design second to none. After the apparatus arrived, all the folks got down to the fire house and had a big celebration. Next day, their Fire Department was completely forgotten. Two weeks ago one of their large business houses was completely destroyed, due to lack of trained personnel. The investment in this case could have been as well spent giving the kids candy. Just the opposite can be seen any day across the Mississippi River in Arkansas in a small town of 400 souls about 50 miles from Memphis. They have no fire house, their 1929 Ford truck being housed in the jail. In the past eight years their seven trained volunteers and a well trained Chief have not had a single loss to exceed $100 in the town limits, while its nearest neighbor, with two good pumpers and an untrained personnel, generally loses everything but the lot.

Indifference of the Citizen

“Yes, Chief, you and I have a lot in common. We both are paid and trained to protect our employer’s property. We both take chances, true, and we both make our share of mistakes. Your job is to protect life and property, and I might add that you are doing a swell job. considering. Yes, I said considering! Considering that 95 per cent of your employers, Mr. John Citizen, doesn’t give a whoop in Gehenna how good or bad your service is, how many ‘riff-raff’ and ‘hangers-on’ the powers that be order you to make into smoke-eaters, or the junk and jaloppies you are expected to use for apparatus that were antiquated long before depression. In general, you Chiefs have only a few supporters, and a huge number of drones who expect you to be another miracle man and pull fire protection out of a hat. I know you can’t do much about it. Education is slowly seeping in.

“You ask, ‘Have I lost any money on accounts directly traceable to fire loss?’ I’ll say I have!

“To give you an ilustration: A year or so ago a young Chinese saved up a few dollars and went into business in a village near here. He was successful in his small way and made a living from his efforts and investment. A competitor resented the ‘foreign invasion’ and one night started a hot fire under the Chinaman’s building. The loss was total— both for creditors and the Chinese, who barely escaped with his life. This loss was due to an entire lack of fire protection.

Lack of Training Causes Loss

“A short time ago 1 observed the lack of training which closely approached criminal negligence. This time it was in a small city of 10,000 folks who don’t even know they have a Fire Department. The building to which they were called was a one story brick, divided by a hollow-tile wall into a grocery and meat store and living quarters, with only a small window opening in the wall. Fire originated in the living quarters and on arrival of the first and only pumper, considerable smoke was coming out of rear windows, the occupants having escaped through them. Only a small amount of smoke had seeped into the store. In this case the Chief was a young man in his ’teens, son of the local politician. On arriving he ordered a large plate-glass window broken out in the front and two streams directed into the store. Fire finally ate through the living quarters roof. Two citizens, aided and abetted by yours truly, using a ‘stolen’ line from the pumper, climbed up a gutter pipe and stopped the fire. Fixtures in the store were badly damaged, and the stock was nearly a total loss, all due to water damage. Not a spark of fire got into the store. You can bet I insist that customers we have in that town are fully protected by both fire and water damage insurance.

“Well, Chief, I hope you folks stay at home tonight, but if you do roll past my house, have the Lieutenant hit the bell a couple of extra times—I may be dreaming of the Credit Man’s Heaven, a place where everyone pays when due. Good night.”

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