Belding banner. (Belding, Mich.) 1889-1918, 1916-04-26
Talks on Thrift
Discounfing a Note


Ii so happens in business that all
payments cannot be made in cash, for
most of the business is done on credit
in one form or another. Small pur-
chases and many Of the daily ex-
penditure are cash transactions; but
business as whole moves on credit,
the form depending upon the customs
characteristic of that peculiar bust
ness. The most common form Of
credit is the book account, where
purchaser. When you go into the
grocer's and tell him to charge it,"
you are retailing transactions. But
in the larger dealings, the credit is
in the form of a promissory note,
which is merely written promise to
pay sum certain, in money, to a
designated person, firm or corpora
ton, at stipulated time. Hundreds
Of thousands of these notes are made
every day. They are given, merchant
to merchant, in payment of debts re-
sulting from the sale of goods, and
while they settle the debt must them
selves be paid in money, in order that
the obligations may be finally dis
charged, for a promise never liquid
ates debt.
If these promises could be treated
as money and passed from hand to
hand, they might answer very well,
but they are of non-uniform denom-
ination, their goodness is a matter
not commonly known, and even
though the maker might be "as good
as the government" few know it and
few would take the risk
And if the holder could wait until
maturity, he would get cash from the
promiser. But he does not want to
wait that long-he wants to turn his
evidence of debt into money at once;
for with money--real money-he can
get better terms, and for certain pur-
poses, such as paying laborers, he
must use cash. There must, there
fore, be some medium through which
he can turn this promise into money
before it is due-for a price-and
that medium is the bank. The pro-
cess of doing this is called discounting
which i'm other words means buying
the paper. A simple illustration will
explain.
Suppose A sells bill of goods on
three months credit. A does not
want to wait while sells the goods
and gets the money to pay him, and
therefore offers to take BIS note for
the amount But the note is not
money. and if A would use the money,
he must find someone who will give
him money for it. He might find
someone who, for the hope of gain,
would advance the money; but the
logical place to get this done is the
bank. for the bank always has money.
1t knows men and their ability to
keep their promises, and can judge
the quality of the risk. A therefore
offers the note to his banker. who
says in substance: II think is good
for this amount. If you will endorse
promise to pay if he does not-l
will buy that paper evidence of debt
from YOU" Let us say it is for 500,
due in three months. The banker
knows that at the end of three
months he will get the 500, and so
gives A $3.50 for it, the $1.50 being
interest on the money for that time
at per cent. Ordinarily the banker
would not give A the cash, but credit
his account, with the privilege of
checking against it, which is virtually
the same thing.
Now, what is the result? A sold
his goods and got his money at once.
B had three months to sell the goods
to get the money to pay the note
when the banker presented it at ma
turity. A could use the $3.50 to buy
more goods to sell to c, and the bank
has made a profit of S1.50 for taking
the risk. That is what banks are
for-to take risks, to know men, to
help business and make profits for
itself And this it does to a very
marked degree. We could not do
business very we'll without this help.
1t is one of the indispensable adjuncts
of business. The promises of bust
ness men held in the National Banks
of the country alone amount to over
three billion dollars. - American
Bankers Association.