Evening star., 1932-08-21
FLEMING SUPPORTS
TRADE ACCEPTANCE
AS TONIC TO CREDIT
Riggs Bank Executive Ex-
plains Advantages Of CON-
merciaI Bills.
BOTH BUYER AND SELLER
WILL Benefit BY PLAN
Business Would Be Stimulated, He
Believes, by Wider Use of Re
discountable Paper.

Recommending wider use Of trade &C
ceptances as a means OF improving gen.
eral business conditions, the Executive
Committee of the Chamber Of Com
merce of the United States, in a state
ment made public throughout the
country last night. quoted extensively
from Robert v. Fleming, president OF
Riggs National Bank of this city. In
support of its proposal.
Expanded use of the trade accept
ance was formally recommended by the
Executive Committee of the national
chamber as a means Of increasing the
outstanding volume Of commercial
paper eligible for rediscount and thus
expanding the banking credit OF the
country.
All business firms and organizations
in the membership of the national
chamber will be urged to give immediate
consideration to ways in which they
can encourage a wide and proper use
of the trade acceptance as a substitute
for the open-book account.
Would Release Credit.
While the national chamber, 1t was
announced, has not mandate from
its members to approve or disprove the
trade acceptance, 1t is the Judgment OF
its Executive Committee that an early
expansion OF the volume Of trade bills
would be of material assistance in i'm
proving general business conditions.
The proper use Of the trade acceptance
in delation to beth buying and selling
transactions will assist in the release
of credit from banks, including Federal
Reserve banks"
Supporting the Executive Committees S
position in the matter, President F1em-
ing of the Riggs Bank was quoted at
length as director Of the chamber,
representing finance. Mr.. Fleming ex-
planned that there Is no question but
that the greater use of the trade ac-
ceptance will stimulate the flow of
credit into commerce and trade. In the
past few months many large industrial
concerns have adopted the practice Of
taking short-term acceptances from re-
sponsible customers in payment for
goods sold to them. and issuing trade
acceptances promptly IN payment for
goods purchased.
"The trade acceptance" Mr.. F1em-
ing continued, "is the best known form
Of prime commercial paper, arising
from a specific business transaction,
bearing the names. as drawer and ac-
ceptor, Of two solvent concerns. It is
eligible for purchase or re6iscount by
the reserve banks. and thus constitutes
the legal basis for reserve bank cur
rency.
Since Federal reserve currency-the
main currency now in circulation-is
primarily based on commercial paper,
1t Is highly important that the banks
OF the country have eligible commercial
paper in their portfolios, which they
can rediscount with the Federal Re
serve bank in order that they may meet
seasonal or other unusual demands
from their customers.
In the last few years there has been
a considerable shrinkage in the volume
OF prime commercial paper. The short
age OF commercial paper has been due.
In part, to the fact that in the boom
period commercial houses financed their
own business through the sale to the
public OF preferred and common stocks
Handling Trade Acceptances.
THE method employed in handling
trade acceptance is a simple pro-
cedure. The seller Of bill Of goods
forwards with the invoice a trade ac-
ceptance form showing the net amount
OF the bill and the date Of payment
The buyer signs the trade acceptance
across the face with the date and place
OF payment and returns 1t at once to
seller, who Is then in possession of
very desirable form Of two-name
commercial paper with a definite ma
turity date and eligible for rediscount
at the Federal Reserve Bank If ma
turing within 80 days.
The trade acceptance has certain
definite advantages over the open-book
account system, which Is the common
practice now in use. This practice
places the seller under the burden of
carrying the buyer-that is, Of extend
ing him credit over long period after
the delivery OF the goods. Granting
OF credit Is essentially the function of
commercial banks and not of manu-
facturers. wholesalers or jobbers. The
seller who carries his customer on an
open account has to secure funds for
this purpose by borrowing on his single
name paper through the bank or note
brokers.
Some misunderstanding appears To
have arisen regarding the effect of the
development of the trade acceptance
upon the continuance of the cash dis
count principle. The trade acceptance
Is not necessarily substitute for such
discounts, 1t need not affect those trades
where cash discounts prevail, nor need
1t lead to a revival of the cash dis
count system in trade or lines where
it has been abolished The adoption OF
the trade acceptance merely replaces
the open account on the sellers books
with a written acknowledgment Of the
buyers obligation in such form as to
make it more readily available in
strument of credit.
Borrowers Position Strengthened.
THE trade acceptance Is not a new
or untried instrument of credit 1t is
, simply a particular type Of time-tested
bill of exchange known and successfully
used all over the world, and at one time
extensively used in the domestic trade
of this country. Prior to the Civil War
bills of exchange were as familiar in
our own domestic trade as foreign bills
Of exchange now are in our foreign
trade, or as both foreign and domestic
bills are in the trade and commerce Of
foreign countries.
The effect Of trade acceptance de-
velopment in securing funds for busi-
ness purposes should be most beneficial.
Holding prime acceptances, the bor-
rover in good credit is less dependent
upon local banking resources and local
money rates. With such credit he is
in a position to commend the best
rates prevailing, as acceptances in his
possession open to him the privileges
Of competitive market, just as salable
merchandise does. Instead of the
business man being obliged to depend
for funds upon his line Of credit at his
bank, in some cases small institution
away from the greater money centers.
he can use the facilities Of the larger
financial markets of the country.
.sTn the seller manufacturer iobber