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Mercantile And Collection Agencies

( Originally Published 1918 )

Mercantile Agencies

The mercantile agency is an evolution—the natural outgrowth of the demand among merchants for exact information regarding the financial standing of their customers. The first agency in this country dates back to 1840, when a number of merchants in New York City organized for the purpose of interchanging credit and other trade information. At the present time there are two mercantile agencies of national prominence in this country—Bradstreet's and Dun's. There are numerous smaller organizations confined to special trades or lines of business or to limited territory. The predominant purpose of all these is the gathering and dissemination of credit information.

The two national agencies mentioned have wide-spread and effective organizations, with offices, representatives or correspondents in every part of the country, and in practically every important city of the world. They furnish credit information in regard to any mercantile person, or subject, resident in the United States or Canada, or residing in any part of the civilized world.

Mercantile Rating Books

The mercantile agency is sustained by subscriptions from its clientele. The two general agencies, mentioned above, publish quarterly reference or rating books in January, April, July and October. For the use of books em-bracing the entire country, and the supplying of a limited number of special reports, the subscription rate, or fee, required by these agencies is $100 and upwards per annum. This includes the use of semi-annual editions, an extra charge being made for quarterly volumes. For such service in but a portion of the United States, the western states only, for instance, the annual fee is slightly less, and a proportionately lower charge is made for extra copies of the rating book. Additional special reports over and above the number agreed to be supplied for the mini-mum subscription fee just referred to, may be contracted for by the hundred, the price depending upon the kind or class of reports wanted. Inasmuch as the changes in rating average over 3,000 a day, this frequent replacement of the reference book is desirable where late information is advantageous.

The reference books issued by the Bradstreet and Dun agencies are very comprehensive volumes, covering the entire country. They are supposed to contain the name of every individual, every partnership and every corporation in the United States and Canada doing an in-dependent business of a nature and of a sufficient volume to be of interest from the credit standpoint. For each individual or concern rated they give the place and the nature of the business, the estimated worth, and the general credit standing. The ratings and the lines of business of the parties whose names appear are indicated by letters, numbers and symbols, the meaning of these being explained by a "key" in the front of the book. For each state the names are arranged under the city or town of residence, and under this place of residence, alphabetically. The volumes also contain at the end of each state a map of the state, a list of its more prominent banks and bankers, and an abstract of the collection laws which obtain in that state.

The information upon which the reference books are based is primarily obtained from the rated parties themselves. For this purpose reporters are sent out to inter-view them; and blanks are left with them to be filled out. The questions appearing on these blanks are exhaustive and very searching in their nature, and, if properly answered, give a very good basis for credit rating. Where the rating is an important one, the information furnished by the party himself is usually verified from other sources.

The information upon which the reference books are based is primarily obtained from the rated parties themselves. For this purpose reporters are sent out to inter-view them; and blanks are left with them to be filled out. The questions appearing on these blanks are exhaustive and very searching in their nature, and, if properly answered, give a very good basis for credit rating. Where the rating is an important one, the information furnished by the party himself is usually verified from other sources.

The reference books published by the agencies are merely loaned to subscribers, remaining the property of the concern by which they are published, to be returned to it when a new book is sent out to replace the old, or at the expiration of the subscription term if the subscriber does not renew. Each subscriber signs a contract with the agency, in which he agrees to conform to its rules, and among other provisions to treat all its information as strictly confidential. The agencies do not consider them-selves responsible for the ratings appearing in the reference books, and require that the information in them shall be held in confidence and shall be used only by the subscribers.

Special Reports

For any ordinary credit purpose the information given in the agency reference books of late issue is sufficient. For instance, if a wholesale merchant receives an order for a small bill of goods from an out-of-town customer, and wishes to know whether this customer is a good risk, he turns to his reference book for the rating. If he finds the prospective customer has a fair and good credit, he is usually satisfied and sends the goods along. If, however, he does not find his customer in the rating book, or if the amount involved is so large that he thinks further information is desirable, he applies for a special report.

The special report goes into much detail, giving every-thing that can be discovered which affects the credit standing of the party under inquiry. Such a report usually tells how long the party has been in business, the business or businesses he has been and is connected with, the amount of his capital, any mortgages or other recorded liens on his property, hie reputation for paying bills, important facts in his history that would throw light on his general character, and any other details that might prove of value in determining the credit to which he is entitled.

The agencies have this information on file for all the better-known business men and concerns of the country. When a special report is applied for, if the name of the person or concern inquired about does not appear in their files, or if they do not have the required information, or if their information is not recent, they make an investigation. The special reports furnished in answer to inquiries are held to be confidential, and the agency does not regard itself as responsible for their correctness, merely under-taking to secure the most reliable information it can and passing this on to the party who asks for the report.

When a special report is called for, the agencies utilize the information on file as far as available. If none is found on file, or if the information on file is not adequate or not of late date, a reporter is sent out to secure such information as he can in regard to the person inquired about. The party himself is usually approached for a statement of his financial condition. The reporter then seeks confirmation by interviewing people to whom the party should be known, particularly those with whom he has, or has had, business dealings. Beyond this, when occasion requires, he examines the county records to see what real property stands in the party's name, and to see if there are any encumbrances against it.

The agencies are frequently criticized as to the time taken to supply reports, as to the errors which do at times occur in these reports, and as to their cost. When, however, we consider the complexity of the system, the exacting requirements, and the careful and rather delicate work involved, the reports are usually as prompt and accurate as could be expected, and the cost moderate.

Trade and Local Mercantile Agencies

There are a large number of small agencies confining their operations to particular localities or to particular trades. These smaller agencies, while frequently useful to the collection manager, do not cover the territory nor have the facilities of the larger agencies, and for this reason, where any considerable volume of business is transacted, and particularly where the business is national in its character, the services of the larger agencies are necessary. The collection manager will frequently find the services of a local or trade agency advantageous as supplementing the information of the larger agencies.

Collection Agencies

The collection agency is a concern making a specialty of collecting debts, and more particularly those debts which the collection manager cannot himself collect.

It might perhaps be said with more accuracy that the collection agency is an institution for the collection of bad debts. It is but seldom that the ordinary, easily collectible account is given to a collection agency.

The better class of collection agencies are reliable, fairly efficient, employ good attorneys, and transact a large volume of business. Small accounts not paid under ordinary pressure are habitually placed for collection with the collection agency. Many houses, when a larger account becomes difficult, or when suit is to be brought, place the matter with such an agency in preference to handling it themselves. Then, if suit is brought, the onus, in part at least, falls upon the agency. The suit is not brought directly, and, if the debtor complains to the house, it is always possible—if desirable—to sympathize with him, explain that the agency has gone further than was in-tended, and that the concern will be glad to settle direct with the customer and "leave the agency out in the cold." This is, of course, entirely metaphorical, as the agency gets its commission no matter whether settlement is made through it or made direct; but the idea is soothing to the injured feelings of the debtor, and is at times effective.

As stated, the accounts placed in the hands of agencies are usually those which have proved too difficult for the collection manager, or which, for special reasons, it is inadvisable for him to handle. In most cases, whatever is realized from such accounts is just that much gained. If the collection agency returns a claim as uncollectible, it can be placed in the hands of some other agency, or, if thought best, transferred to a suspense account to await some change in the debtor's affairs which will give it value.

Accounts placed with a collection agency are usually on a commission basis. Where the amounts involved are moderate, this commission is usually 10 per cent, with a minimum charge of from $1 to $3. It is needless to say that the status of the agency should be determined before accounts are placed in its hands. It may be even harder to collect a debt from an unreliable agency than from a poor-pay customer.

When a claim is placed in the hands of an agency it not infrequently happens that the debtor calls or sends in and pays the account direct. In this case the agency is entitled to its commission, which is but fair, as its efforts drove the debtor to pay his account.

Methods of Collection Agencies

As stated, the collection agency usually takes accounts on a commission basis. If it is necessary to bring suit, the agency usually requires the party placing the account with it to pay, or guarantee, the costs. Commissions and any costs paid by the agency are deducted from the proceeds of the collection before any payment is made to the party to whom the claim belongs.

The collection agencies are very direct in their methods. The good-will of a customer is eliminated from their consideration, and they do not attempt in any way to mask or soften their demands for money. Their letters are to the point and very little delay is tolerated. It is said that collection agencies secure at least 50 per cent of the total amount they collect as a result of their first letter.

Some agencies furnish blanks or form letters for use by their clients. A small charge is usually made for these blanks, which, though purporting to be sent out by the collection agency, are in reality filled in and sent out by the collection manager or his concern. Such communications usually demand payment in no uncertain tone, and request that this payment be made at the subscriber's office.

Letters of this nature are frequently effective. They are advantageous as enabling the house to hide behind the name of the agency, thereby gaining a double end: first, the house does not directly affront its customer by the somewhat emphatic demand for money, and, on the other hand, it gets the added weight of the agency name. If this first "effort" does not produce results, the claim is then usually turned over to the agency for direct and more active effort.

Other collection agencies furnish drafts for the use of their customers. On these are printed instructions notifying the bank presenting the draft to forward the claim to the agency in case the draft is not honored. This plan is often successful in producing results, but deter-mines in advance that the claim is to be placed in the hands of the agency if the draft is not paid. If the draft is paid, the agency sometimes receives a small commission, though it usually relies for its compensation on an annual charge for its services, or on a small charge for the drafts, or perhaps depends entirely for its compensation on the business which comes into its hands through these drafts.

Under another plan, a contract is signed between the agency and the merchant, by which the agency agrees to collect the merchant's accounts on the basis of a specified commission, plus ten cents on each claim, paid in advance, to cover postage. The usual terms of such a contract require that the claims placed with the agency must aggregate $25 or more, the commission varying with the total amount turned over for collection. Under this plan the merchant is in a way guaranteeing the agency a certain amount of business. The amount received for postage usually goes to the solicitor who se-cures the contract for the agency, and forms part of his commission. The full amount of the solicitor's commission depends on the size of the contract which he writes with the merchant.

This contract plan is said to have merit, and may be advantageous under some circumstances. As a rule, however, the usual plan of a contingent fee on whatever business is placed with the agency is better, as here the merchant is not obliged to place any definite amount of business with the agency, has the privilege of withdrawing a claim, and pays nothing until something worth while has actually been accomplished.

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