CHAPTER XI PROTECTIVE ACTIVITIES Credit and Collection Bureaus.-One of the evils imputed to the competitive system is the lack of control over credits, resulting in inflation, unwise extension of credits, and consequent losses, the burden of which must fall ultimately upon the consuming public. The evil is a real one, but it can be at least partially corrected through coöperation by the business men of each industry. Local trade bodies everywhere have established credit bureaus, which have raised the standards of business relationship in their communities and lessened business costs.1 Such organizations functioning in a national way in each industry are of considerable value both to the public and to the industry. They tend to reduce the risks and losses which result from unwise granting of credit. They tend to weed out the professional deadbeat whose methods in making purchases are apt to be reflected in equally dishonest methods when dealing with those to whom he sells. They tend to curb undue inflation of credit with its unhealthy reactions and to avoid the needless tie-up of great amounts of capital which could be used for productive purposes with great benefit to society. To the business concern whose distribution is nationwide, which is unable to maintain a close personal contact with its customers, a credit bureau in the trade association of the industry, supported by all the members of the association, is of great value. Its general effect in the improvement of conditions in the industry with consequent public benefits may easily be very substantial. Protective Methods.-The operation of an efficient credit bureau in an industry is usually much more difficult than the maintenance of such a bureau in a community. The large mem 1 For a complete analysis of the organization and methods of local credit bureaus, and a compilation of forms, see "Commercial Organization Credit Bureaus," published by the Chamber of Commerce of the United States. bership of an association, as well as the very large number of buyers in some industries make it a difficult problem to evolve a system of real value. The organization must, of course, be adapted to the peculiar conditions of the industry. The scope of the work of a credit bureau may be along the following lines. First, if the membership of the association is small, and the number of buyers not too large, complete credit information can be exchanged. A bureau in such an industry compiling fresh confidential data as to the obligations of a buyer, his pay habits, his business methods as shown by past transactions, his character and general reputation, can be of infinitely greater value to the concern participating in such work, than data secured from any ordinary credit agency. Small compact associations, such as the Tile Manufacturers' Credit Association, or associations whose credit service is localized to a limited territory, such as that of the National Wholesale Lumber Dealers' Association, have been able to develop complete credit information regarding most of the customers of their members. The latter association, through years of operation, has built up a trade history of retail trade purchasers, which is invaluable. Second, if the number of buyers is large in an industry, it may be physically impossible to go beyond the compilation of information regarding those concerning whom members make inquiry. The wholesale branch of an industry serving perhaps several hundred thousand retailers, for example, can scarcely do more than this. Some associations, such as the Prepared Roofing Association, the Association of Ice Cream Supply Men and the Associated Batting Manufacturers, on inquiry of a member, circularize the members for their experience with the prospective buyer, and a composite report covering his existing indebtedness, and pay habits, as shown by past transactions, is sent to all members who contribute information. Third, investigation may be made only of buyers concerning whom members may make complaint, the information being kept on file for the use of members, or furnished to all of them in composite reports, coded so as to protect the source of the information. There are in every industry many buyers who habitually engage in sharp practices. They take extra time in discounting their bills or make a practice of filing unjustified 3 complaints. They claim improper deductions in making settlement, knowing the seller cannot go to the expense of bringing suit for very small amounts. They reject carload shipments, merely to force a lower price, or cancel orders without cause. There are buyers, too, who often change the location of their business with fraudulent purpose. To protect the industries against this class of buyers, the members of the National Warm Air Heating & Ventilating Company report to their Secretary undesirable customers as they develop in their business. The National Boot and Shoe Association maintains a bureau to whom members report flagrant cases of breach of contract or their improper conduct by buyers. Buyers who are reported three times in six months, and those refusing to arbitrate differences, are reported to all the members.2 The Central Paper Box Manufacturers' Association also has a system of reporting delinquent debtors. The general epidemic of cancellation on the part of buyers during the falling markets of the past several years, has resulted in special efforts on the part of sellers to cope with the situation. The American Association of Woollen and Worsted Manufacturers handles cancellations through its Unfair Practices Committee and in the event the decision of this committee is not accepted by the customer, his name is confidentially bulletined to the members of the association. The silk industry has established a Bureau of Contracts, which reports to all its subscribers the names of the concerns making claims for relief from their contracts together with a statement of the nature and the basis of the claim.5 This association is employing accountants and technical experts to aid in a fair determination of the facts. The Millers' Exchange has not only developed a system of exchange of data, which gives the members accurate information on buyers who do not perform their contracts, but have also developed a thorough plan of mutual indemnity insurance against losses arising by reason of the refusal of purchasers to perform their agreements. In some industries there appears to be an equal need for an 2 Shoe and Leather Reporter, Jan. 27, 1921, p. 56. 3 Proceedings, Thirteenth Annual Convention, 1916. 4 Printers' Ink, July 1, 1920, p. 66. 5 Ibid., p. 68. agency through which distributors can protect themselves against unreliable manufacturers. Just as there are buyers who engage in shady practices, so too there are manufacturers who delay shipments on their early low-priced orders but find no difficulty in filling their later high-priced orders, or who skimp their grades and ship inferior stuff on a rising market, pad invoices, and what not. Obviously, it is a mutual benefit to every member of any association to have available information as to the experience of fellow members which would protect him against dishonest traders, or those to whom the extension of credit is unwise. Finally, an association may merely make an investigation or statistical study of general conditions affecting credit, to inform the membership of existing conditions and their trend. The National Wholesale Druggists' Association compiles information annually, showing the average number of days' time taken by buyers for payment of accounts. Existing practice in the industry, with reference to such matters as interest on past due accounts, free goods, cartage, drayage, and so on are also studied.s Collections.-A credit bureau may also be effectively used as a means of bringing the group pressure of the association to bear on a slow and delinquent debtor. A member may advise the customer of his intention to turn the account over to the credit bureau for collection and the bureau itself may supplement, if need be, such action by a letter without making further efforts toward collection. Some associations extend their activities to the active collection of overdue accounts. Among such associations are the National Warm Air Heating and Ventilating Association, the Wholesale Seedsman's League, the American Association of Nurserymen, the Knit Goods Manufacturers of America and the National Wholesale Lumber Dealers' Association. The advantages of such action are the strong moral effect upon delinquent debtors, often resulting in quick collections at little expense, and the payment of many small accounts which would not admit of usual collection charges. An association can usually make collections at less expense than would be 6 Forty-fourth Annual Meeting, pp. 210-335. See also Oil Paint and Drug Reporter, Oct. 4, 1921, p. 2. involved in the use of private agencies. The bureau of the knit goods manufacturers, for example, during its first year collected over $40,000 in delinquent accounts, at an expense of about 1.3 per cent. There is, however, considerable objection in some associations to collection activities by an association agency, because of the fact that misunderstandings arising in connection with the handling of an account, not only antagonize the customers, but injure the association as well. Not only the customer may extend his ill-will to the other members of the association but also the member whose account was handled may himself also be dissatisfied with the method of handling. Legality. It is unlawful for an association to establish and maintain rules for the giving of credit to dealers which have the effect of restricting competition. Competition in terms may be and sometimes unquestionably is as important a factor in trade as the price offered. No association can, therefore, safely adopt uniform rules as to the terms of credit to be granted buyers. But on the other hand, associations are justified in taking reasonable fair action to protect themselves against delinquent debtors or dishonest dealers. In the Swift case cited above, the Supreme Court approved the provision of the injunction issued by the lower court, providing that nothing in that injunction should be construed as prohibiting the defendants from "establishing and maintaining rules for the giving of credit to dealers where such rules in good faith are calculated solely to protect the defendants against dishonest or irresponsible dealers." The right of persons to associate to protect their interests by discriminations against persons who fail to pay their bills due to members of the association is fairly well established, provided it is not coercive and arbitrary.10 State courts have also been 7 Report, Roy A. Cheney, Secy., Knit Goods Mfrs. of America, Textile World, May 21, 1921, p. 25. 8 Decree, United States vs Swift and Company. Decree and Judgments in Federal Anti-Trust Cases, p. 64. See also Letter, H. M. Daugherty, Attorney General, to Herbert Hoover, Secretary of Commerce, Feb. 8, 1922, Appendix J. See also p. 258. 9 Ibid., p. 65. 10 United States vs King, 229 Fed. 275-278 (1915). |