The Indianapolis journal., 1883-04-27
CURIos1rIEs OF CREDIT.
Merchants Promises TO Pay, and How They
Are Regulated in Trade.
New York Times.

Merchants Promises TO Pay, and How They
Are Regulated in Trade.
New York Times.
Promises to pay abound The richest
house issues its paper as well as the smallest.
Brokerage establishments have been founded
some of them with 81 600 at their COM
mand, to handle the paper of the merchants,
and there are banks which make feature of
dlscountlng the paper. One bank is known
to have had as much $l4. 900. 600 of the pa
per on hand at ore time, and there are three
or four which carry in the neighborhood of
600 worth the year round. The rate
OF discount by the banks is all the way from
3% to 25 per cent, according to the standing
of the signer and the broker receives one
fourth of per cent for negotiating the pa
per. A merchant may draw his note for
$4,000. He wants $4,000 at once and the
to obtain it. The broker ad-
vances the $4,000 out of his own
capital, and he goes to the bank to negotiate
the note. If it is after banking hours when
the merchant draws his note, the $4,000 will
enable him to promptly meet an obligation,
and the need is not so urgent but that the
balance can go over until the next day. The
broker of course, deducts his $40 900 as soon
as he gets the $4,000 less the discount, and
the bank carries the full amount when the
paper goes into its keeping
By the recognized rules of trade the nor
circuit is limited TO OU per cent. more
than the capital of the house. To take it
beyond that limit reduces the rating of the
house, and makes the paper what in COM
mon parlanee would be called .'risky" In
granting credit the pfan is to allow 10 per
cent for an individual account In
other words, if the capital of a
house is $780, 900 the seller will grant
credit to the extent of $40, 900 Thus it would
take ten transactions to use up the entire
capital and in this way the individual risk
would be reduced to what would be called
minimum. This is not always the case for
very often in special lines of goods the limit is
exceeded, but it is the fundamental rule A
jobbing house will do business of $4,000, 900
a year on a capital of 81, 900 000 an investi-
gator of credits explained. 1t is very seldom
that the volume of business a year amounts
to over eight times the capital invested. The
house will sell the goods on sixty days time.
1t will pay for the goods in thirty days but
to do this it must have its bills dated ahead.
The house will pay in January and February
for the spring trade, but the bills will date
from April and May l. The credit of a
wholesale house depends, naturally very
much upon the rate at which its paper
sells. Then, again, the money market has
certain influence which has to be considered,
Since the commercial agencies have attained
such magnitude the credits are based largely
on their Information. Owing to the extent
OF the country the individual merchant can
not keep track of the responsibility of the
traders in the di fferent States who may de-
sire to purchase of him. To maintain their
own reputation the agencies must strive for
accuracy and trustworthiness, and, there
fore their reports have come into wide
spread use. The establishment of CONNER
oial ratings brings money that has been re-
tired into circulation. To such COM
parative perfection has the system
been reduced thac the purchase
Of mercantile hoc haa,, aAa e.
and advantageous investment. A merchant
retires with, perhaps, fortune of 81, 500 00O
Government bonds and stocks he may think
do not pay a sufficient amount for the use of
his money, and he finds a ready market for
it at and 8 Der cent. in mercantile paper
The method of doing business has greatly
changed The jobbers take very little of
their customers paper to the banks for dis
count They hold it, and deal in sinsle-name
or their own paper exclusively. They are
known, while their customers may not be-
and the discount on the latter's paper would
be too great
The practice of dating ahead has In some
measure taken the place of the old system of
selling goods on six months credit with the
privilege OF discounting at thirty days, at the
end of which settlement by note was re-
quired. The merchant then would take the
note to his banker and have it discounted.
Under the present plan. especially in the
clothing line, goods are sold on four months
time, and sixty days extra time without
note, so that credit to-day is as long in some
trades as before the panic. There seems, how
ever, to be ar inclination to reduce the time
on which goods are sold
The rating of new house is quickly estab-
lished. If it starts out with capital OF $780,
900 and buys 100000 worth of goods, it is
considered to have done an injudicioas
thing to say the least. 1t ought not to buy
over S150,000 worth OF goods If its transac-
tions are at the rate of S7o0, 900 or $500, 900
year, it will soon have $150000 trusted out.
To start on borrowed capital curtals the
credit. Under ordinary circumstances the
credit allowed in such cases is only twothirds
OF the capital, and the chances of the success
OF house are greatly diminished.