The Colfax chronicle. [volume] (Colfax, Grant Parish, La.) 1877-1981, 1883-06-30

carries the full amount wnen tne paper
goes into its keeping.
BY the recognized rules of trade the
normal credit is limited to fifty 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 common parlance
would be called .'risky' - In granting
credit the plan is to allow ten per
cent. for an individual account.
In other words, if the capital of
a house is 100000, 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 re-
duced to what would be called mini
mum. This is not always the case. for
very often in special lines Of goods the
limit is exceeded. but it is the funda-
mental rule. A jobbing house will do
business of %, 100000 a year on capt.
ital Of 81 100000, an investigator of
credits explained. It is very seldom
that the volume of business 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 on thirty days, but to do this it
must have its bills dated ahead. The
house will buy in January and February
for the spring trade, but the bills viii
date from April and May l. The credit
of 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 COM
mercial agencies have attained such
magnitude the credits are based largely
on their information. Owing to the
extent of the country the individual
merchant cannot keep track of the re-
sponsibility of the traders in the different
States who may desire to pure base of
him. To maintain their own re putation
the agencies must strive for accuracy
and trustworthiness, and, therefore,
their reports have come into widespread
use. The establishment of commercial
ratings brings money that has been re-
tired into circulation. To such COM
parative perfection has the system been
reduced that the purchase of mercantile
paper has been made safe and advan-
tageous investment. A merchant re-
tires with, perhaps, fortune of
81 800, 600. Government bonds and
stocks he may think do not pay a suffi-
cient amount for the use of his money,
and he finds ready market for it at
six and eight per 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 discount. They hold it,
and deal in single-name or their own
paper exclusively. They are known,
while their customers may not be, and
the discount on the latters 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 dis
counted. Under the present plan, es-
pecially 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,
however, to be an inclination to reduce
the time on which goods are Sold
The rating of new house is quickly
established. If it starts out with .
capital of 800, 600 and buys $500, 600
worth of goods, it is considered to
have done an injudicious thing, to say
the least. 1t ought not to buy over
$l50,0O0 worth of goods. If its tran
sactions are at the rate of 500, 900 or
$500, 900 a year it will soon have $780,
600 trusted out. To start on borrowed
capital curtails the credit. Under or
binary circumstances the credit al
lowed in such cases is only two-thirds
of the capital, and the chances of the
success of house are greatly dimin-
ished. Three persons started q house
January with a capital of $60, 900.
Each put in $4,000 which he had
borrowed. The loaners stipulated that
the money should be at the risk of the
business until 1885. In other words, if
the business absorbed the capital before
that time the loaners could not step in
to save themselves, but at the expira-
ton of that period they could step in
and close up the business II they saw
fit. This is an illustration of the man.
ner in which borrowed capital figures
in the mercantile trade. Until the
eventful day is passed. the life of such
house is uncertain, and it must labor
under many disadvantages. Without
good credit the house cannot ex-
tend its business, and without
confidence it cannot obtain credit.
The commission business is looked upon
as the safest. A commission house will
make arrangements with mill for it to
produce 100000 worth of goods. As
soon as a quantity Of merchandise is de-
livered to the commission merchant he
gives his acceptance in the shape of a
note at from thirty days to four months
for from one-third to .three-fourths of
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