Radio and Television Today (Jan-Nov 1941)

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CREDIT FUNDAMENTALS Lessons for parts jobbers and their customers. Responsibilities of radio grantors and debtors. Credit has been denned as the power to obtain goods or services by giving a promise to pay money or goods on demand or at a specified date in the future, explained M. E. Hamilton, vpcontroller P. R. Mallory & Co., addressing a company sales meeting last month. Credit, he continued, has also been defined as an accommodation which one concern renders to another, when it gives valuable things in the present, in return for a claim to be paid or discharged in the future. Credit is, therefore, the permissible use of another's funds. More money is advanced and more credit is extended on character and business prospects, than on physical assets. Any banker, in dealing with an individual, appraises the moral aspect of the loan above all else. On a business loan, he looks first at the people running the business, secondly at the prospects that the company will maintain a comfortable margin of profit in its operations, and next for his security. If the character and abilities of the company and its management look favorable, he may have some confidence that the debt will be repaid. He will appraise any credit situation, not by volume transacted, but by the desirability of having that volume through profits earned. CREDIT IS A LOAN Of course there are common-sense ratios which must be observed by any credit grantor, as a further index ?.f the desirability of extending credit. Generally, credits are arrived at by means of extensions of ratios based upon past experience. In effect, this represents a definition of policy in respect to the aggregate amount of credit which will be extended, and the granting of credits in individual instances will be indirectly determined by these limitations. Each case is handled on its own basis in the light of all attendant circumstances. RESPONSIBILITIES OF GR4NTOR The credit grantor, in extending a line of credit to a customer, owes his debtor a definite responsibility. In this type of business, one of the worst offenses of a creditor against a debtor is to overload the debtor with too much merchandise. This has been a failing in many industries, by sales managers influenced only by the hope of realizing the greatest possible volume. In days gone by, such a sales manager's tenure office was usually short because he did one thing — he broke the back of the dealers through harmful over-extensions of credit, thereby creating obsolete stocks for which his dealer could not pay, resulting in increased dealer mortality. Credit policies will go a long way towards indicating the character of any organization. It is not the policy of a good company to overload its dealers. Good-will can be lost very rapidly, indeed, through overloading of customers. In the radio parts business we have jobbers who are well financed and capitalized, and we also have "shoe-string" operators. It is the same in any industry which serves the public in an extensive way. The automobile industry parallels the radio industry, in that many distributors and dealers are "shoe-string" operators, just as some repair men without capital operate on their experience alone for the purpose of earning a livelihood. However, if selection of "shoe-string" operators is made carefully and handled correctly, many times they will turn out to be your best outlets and your best customers. SALESMEN CAN HELP While I am averse to asking our sales representatives to be collection agents, they can, on the other hand, be of material help in assisting us not to overload our jobbers, and in doing a good job of advising the customer what to buy, how much to buy, and how to merchandise. In my opinion, we should, at all times, take full responsibility for helpfulness to any customer whose affairs are in a dubious condition. In analyzing some of the accounts on our books at the present time, it is my observation that the difficulties of customers who are in trouble arise from conditions for which we are partially responsible. We did not keep in close enough touch with the customer's affairs; we did not give him the help and advice in time to keep him out of trouble; we allowed him to build up volume at little or no profit j A Portable Solves' a Lot of Problems | while he was reaching out for this greater sales volume to enable him to keep in a good current condition; we attempted to get our money out of the account, without taking enough interest in helping him build his company and his capital to a strong position. EXPAND CAUTIOUSLY Nothing helps more in the development of any business than making profits, and the sound and proper reinvestment of those profits in the business. Every business has a volume limitation. If it does not, at least it should have. Some distributors accept the exhortations of our sales department to produce more volume. Sometimes they do it before they are ready. They do it at too great an expense. I know of one jobber at the present time who is in trouble simply because he used his capital to expand the business. The expansion program resulted in no profit. Over a period of time many additions to his capital have been made, but today he is in the position of asking his creditors to accept an extension on the amount owed them, and in practice, as well as theory, finance his business. He cannot obtain bank loans; he cannot take care of current requirements; and, if the plans he has in mind at present cannot be worked out, his business will be lost and the efforts of many years will be nullified. Our men in the field have a very definite responsibility to prevent such situations happening. KEEP FIRM FOUNDATION In our credit relationships, I hope we build for a sound, effective program that will really be helpful to our customers, not merely for the sake of the assurance that our invoices for merchandise shipped them will be paid, but that we may assist these accounts in building their businesses on a firm foundation. It does us or the eustomer no good to set up a distributor, have him operate for a while, and then fold up. I say this does us no good, for the simple reason that we are back in that particular locality within a short time looking for a new distributor. Many sound business men, in consideration of taking on our line, will hold their tongues in their cheeks while listening to our sales talk that the line is profitable, having watched another distributor fail with our line in the locality, making it difficult to obtain a satisfactory replacement. After all, in our selling we are not merchandising so many switches, so many vibrators, so many condensers, etc. — we are selling a business proposition, one that entails an investment on the part of the prospective distributor, wherein he can make a reasonable return on his money. 30 RADIO TOD A Y