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Cash Or Credit - Which?

( Originally Published 1912 )

Every retailer has puzzled his brain over the question, as to whether he will make more money if he sells for cash only or for credit and cash. It is an important question. There are few other questions in the retail problem which are more important.

Indeed, this question is a sign post at the parting of the ways.

Let us patiently dig clear down to the bottom of the matter, discussing the advantages and disadvantages of every side of the question, so that every retailer, little or big, will have a broad understanding of all of the problems and possibilities relating to cash or credit in every kind of business. In the first place, it ought to be known that the great bulk of the world's business is done on credit. Credit is the "warp and woof" of commerce. The moment there is any attempt made to do business as a whole on a cash basis, there is a panic.

Proportion of Credit Business

The manufacturer buys all of his goods on credit, and sells them on credit. There are so few exceptions to this statement that they can be disregarded. The railroad carries most of its freight on credit, the telephone and telegraph companies do most of their business on credit; the gas and electric light companies do their business on credit, except with the "prepayment meter" classes; all building construction is done on credit ; the $685,000,000.00 annually of advertising in the United States is nearly all done on credit. Ninety-five per cent. of the banking business is done on credit—a proportion as surprising as it is impressive. Exporting and importing trade is credit business. Only the little "classified" advertisements are paid for in cash, and even this is shifting partly to a credit business by 'phone —thereby emphasizing the distinction.

Indeed, the chief reason why there has been such a continuous and urgent appeal for a better government monetary system, is the universally acknowledged need of a more flexible and expansive credit, such as they have in England, France and Germany. In view of these facts, why is it that so many retailers have felt inclined to discontinue credit trade and sell only for cash?

Losses Create Misconception

Of course, briefly stated, the reason is that they have lost so much money that belonged to them, for goods which they sold on credit, but were unable to collect.

Why were they not able to collect that money?


They were not able to collect, for six general Reasons which explain why some retailers want to change from credit to cash.

Too Liberal Credit

First: Because they were too liberal with credit; they gave more credit to some people than those people were entitled to. They gave longer credit to others than they should; they were careless in handling their credits; they did not look upon a dollar's worth of credit as an actual dollar of real money.

Old System Unreliable

Second: The old "Day Book and Ledger" method of handling charge accounts was so unreliable and was the direct cause of so many losses that merchants became discouraged about the whole credit business; they did not see that it was not the customer's fault, but in reality and fundamentally their own fault because of their method of handling credits.

Tendency to Shorten Credit

Third: In every phase of commercial life—retailing, jobbing, manufacturing, transporting, advertising—there has been for some time a growing tendency to shorten credit. Instead of the old way, of giving two, three, four, six or twelve months' credit, the time has been cut down to ten days cash, net 30 days—rarely sixty or ninety. This has been brought about by the growing need of capital. In no part of the world do conditions change so quickly as in the United States. In no other country do people go to such extremes. We are an optimistic, "progressive" people. We build and bank on "futures."

Increasing Cash Discounts

The jobber knows that if, instead of giving thirty to sixty days' credit he will give from 2 per cent to 5 per cent cash discount, he can get practically all of his money back in ten days. With that money in his hands, he can then drive a better bargain with manufacturers—with certain manufacturers, who may for the moment be in financial difficulty, or who for any other reason may want the money quickly.

The manufacturer who frequently, because of advertising and selling methods that he has entered into, finds his business growing faster than his capital can handle, makes cash discount inducements to the jobber and to the retailer.

Hence, from the manufacturer and jobber, the retailer is having a constant demand for quick money. The retailer logically and inevitably says: "The only way I can get quicker money is to either sell more, or everything for cash, and less, or nothing, for credit."

There is a glaring fault of argument right here. It will be answered in later pages.

Careless Bookkeeping

Fourth: There are a great many people who are good merchants and good salesmen, but who do not like bookkeeping. It bothers them; they do not understand it; they think it is a useless expense; they are therefore careless with it, and it therefore be-comes a serious source of loss to them. What a man can master, he likes ; if he cannot master it, he does not like it. Hence, the general antipathy and hostility towards bookkeeping.

Unfair to Home Dealers

Fifth: In some sections of the country the public has done an injustice to local merchants. They buy on credit from their home dealer, but when they sell their potatoes, or cattle, or hogs, or apples, or truck, or grain, or fruit, or other crops, they are not always careful to pay up their old accounts; instead, they take some of the money, and some-times they take all of the money and buy for cash of the mail order houses, or of the big cash city stores. This has become so exasperating to local merchants, that in many places there has grown up a feeling that the only way to get even with such people is to make them pay cash for what they buy at home.

Credit Unwisely Given

Sixth: Many stores have given credit to a class of people who were not entitled to credit. The same thing has happened which would happen if we had immediately given self-government to the Filipinos, or if any savage or semi-barbarous people were given the right to govern themselves by ballot. The great industrial development of America has brought into our commercial life millions of people who are hard-working and industrious, but have not yet learned to fully adjust themselves to the liberty of American methods.

A man who is used to commercial dealings of any size knows that it is an utter impossibility for him to succeed if he does not consider a debt as obligatory upon him as any other contract could possibly be. He cannot dodge it, he cannot neglect it, he cannot evade it, and get anywhere in the commercial world. The very keystone of business is credit integrity.

Ignorant of Credit Obligations

Now if any retailer gives credit indiscriminately, and does not take care of it properly, he is bound to have a certain class of irresponsible, and, commercially speaking, inexperienced people, who will try to evade ordinary bills, because they do not understand the meaning of credit obligations.

Such people should not have credit, except to the extent to which they can and will handle it easily and promptly.

The above are the main arguments of those retailers who are thinking of or desiring to change from a credit to a cash business.

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