REFERENCES GUARANTY TRUST COMPANY OF NEW YORK. Acceptances. HOUGH, O. B. Practical Exporting, Chap. XIV. 359 KENT, F. I. Financing Foreign Trade. Proceedings of the Eighth National Foreign Trade Convention, 1921. Pp. 5-15. KIDD, H. C. Foreign Trade, Chaps. X-XII. DE LIMA, E. A. Financing Foreign Trade. Course in Foreign Trade. Vol. VIII. NATIONAL SHAWMUT BANK OF BOSTON. Bank and Trade Acceptances. O'MALLEY, F. Our South American Trade and Its Financing. National City Bank of New York. PRECIADO, A. A. Exporting to the World, Chap. XVIII. ROSENTHAL, M. T. Technical Procedure in Exporting and Importing, Chaps. XXII-XXIV. SAVAY, N Principles of Foreign Trade, Chap. XVIII. TOSDAL, H. R. Problems in Export Sales Management, Chap. X. WARBURG, J. P. Acceptance Financing and the International Acceptance Bank. WARD, W. American Commercial Credits. WOLFE, A. J. Theory and Practice of International Trade, Chaps. XIVXVII. YOUNGMAN, E. H. Possibilities of Financing Foreign Trade under the Edge Law. Proceedings of the Seventh National Foreign Trade Convention, 1920. Pp. 152–169. CHAPTER XXV FOREIGN CREDITS AND COLLECTIONS Foreign Credit Department.-The Foreign Credit Department is concerned primarily with passing upon foreign credit risks and with making collections. It is usually placed under the supervision of a foreign credit manager, who employs such assistants as he may deem necessary for the proper functioning of the department. The organization should be such as to permit a prompt acceptance or rejection of orders in accordance with their desirability and, should credit relations be found desirable, the fixing of credit limits. As in domestic trade, the mere keeping down of credit losses does not necessarily imply efficiency on the part of the credit manager; one of the functions of the credit department should be the assisting of the sales department in the promotion of advisable sales. It is easy to avoid losses by refusing to do business with those of whose credit worth and integrity one is not absolutely certain. However, the acceptance of only absolutely safe accounts has the effect of reducing not only losses but also the amount of sales. The most successful credit man is the one who can pass favorably upon the largest number of orders and at the same time keep his losses to a minimum. Conservatism or liberality in granting credits is to a certain degree determined by the margin of profits made on sales; where the margin is large, longer chances can be taken than where it is small. A Foreign Credit Department can not function properly unless it is equipped with well-devised and carefully maintained files consisting of comprehensive, up-to-date records CREDIT GRANTING AND OVERBUYING 361 of the concern's customers. A file is provided for each customer; it contains letters exchanged, memoranda, notations. The files are usually arranged alphabetically and are indexed by countries and towns. Some credit departments, in addition to files, have a card index system, each card containing brief, readily available information regarding each client's account. A card index system obviates the necessity of continually referring to the files; these are consulted only when circumstances make it necessary to consider the complete history of the customer's account. Many exporters who formerly thought that it was not necessary for them to know the financial standing and the business reputation of foreign importers, because they were shipping goods on documents consigned to themselves and accompanied by instructions not to surrender until payment had been made, discovered that a long-range C.O.D. (cash on delivery) business is not always as safe and profitable as it may seem. Unreliable firms are only too prone to take advantage of the weaknesses in the position of an overseas exporter, who, when the acceptance of a shipment is refused, often does not know what to do with the goods. Because of freight and insurance charges, the bringing back of wares is often impracticable, especially when there is no likelihood of finding a home market for them or when goods are of a more or less perishable nature; they must then be stored pending the finding of a new buyer or the reaching of a settlement with the party to whom the articles have been shipped. This means delay and often loss of money. Credit Granting and Overbuying.-Liberal credit granting often leads to large orders. Such orders are desirable as long as they do not represent overbuying. Credit grantors should realize that orders in excess of the buyer's ability to sell are highly undesirable; the encouragement of such orders, whatever the method adopted, is bad ethics and poor business. It leads to misunderstandings, to the neglect of obligations on the part of the debtors, to the creation of distrust and ill will. Mercantile credit is sound in so far as it is self-liquidating; the granting of too much credit or of credit for too long a period of time is not conducive to such self-liquidation; when the time for payment comes, the merchant who has been granted too much credit may be found with much of the stock on hand, while the one who has been granted too much time may have spent the money obtained from the sale of goods for other purposes than the payment of his debts. Long-term versus Short-term Credits.-There is little foundation for the criticism which has been often made against American manufacturers that they were not as liberal as their British or German competitors in the matter of granting long-term credits. An inquiry by Mr. A. J. Wolfe ("Foreign Credits," Special Agent's Series 62, 1913) failed to reveal the alleged facts that the manufacturers of either Germany or the United Kingdom were " more willing or better prepared to grant long terms of credit to overseas customers than American manufacturers." The cricitism arose largely because both Germany and Great Britain had in their banks a much better machinery than that possessed by the United States for financing foreign shipments, whether these shipments were made through export merchants or directly by the manufacturers. Cases of long credit granting by manufacturers themselves were rare; as a rule, manufacturers, whether abroad or in this country, can not afford to have their capital tied up for long periods of time. Usually, long-term credits are demanded in economically undeveloped countries. One of the leading occupations of the people in such countries is agriculture, the returns of which are seasonal and slow. Most of the consumers who buy on credit from retailers are farmers, plantation owners, etc.; they generally are not able to pay until they have realized on their crops. Retail dealers, wholesalers, and importers must have, each in their turn, long credits; as they are paid seasonally, they can not meet their obligations at frequently recurring intervals. The comparative scarcity of liquid capital and the poor banking facilities which usually characterize backward countries contribute to the demand for long-term credits by the buyers in those countries. The length of credit is influenced by the distances which separate many foreign importers from their sources of supply. Because of the time which it takes to obtain goods, importers purchase in larger quantities than is the case with domestic buyers; the latter, when their stores run low, can resort to "fill in orders," a procedure out of the question in overseas trade, where often many months must pass between the placing of the order and the receipt of the goods. The putting in of larger stocks has for its corollary a request for longer credits, as it takes more time to turn over a larger stock of goods. In granting credits one should be guided by the consideration that mercantile credit, whether it is used in domestic or in foreign trade, is not "loan and debt" credit intended to furnish importers with means for the carrying on of their business, but that it is a "deferred payment " granted in order to permit buyers to resell the goods before they are called upon to meet their obligations. Credit Granting under Depreciated and Violently Fluctuating Foreign Exchange. During times of rapid and great fluctuations in foreign exchange rates, it is advisable to insist that the customer cover his exchange position when he places the order; if dollar exchange goes up by the time payment is due, he then will have no excuse for not meeting his obligations by stating that such an action would mean to him a loss on exchange. Customers confronted with exchange losses usually insist on extension of time for the making of payments or they request a reduction in price to offset exchange loss. Exporters can cover the exchange for foreign buyers by selling forward exchange in the United States and making out the bills in the buyer's own currencies. Should the foreign buyer object to the covering of exchange either by himself or by the exporter, the presumption is |