The first of these conclusions is supported or rejected by the credit man's knowledge of financial conditions in general, and of conditions in the particular trade of the debtor. During a financial panic, or in a season following crop failures, it is to be expected that book debts will be greater in amount than in ordinary times. In the event of the third conclusion, it is time for a careful investigation. As a rule, the investigation will be productive of best results if an examination of the books by a public accountant is included.
Due from Stockholders. This is an item which must be carefully studied. Who are the stockholders or partners who own the firm, and for what? What is their financial responsibility?
Sometimes, stockholders whose entire fortunes are invested in a corporation are found to be debtors to the same corporation for borrowed money.
Due for Merchandise. This item is divided as to accounts not due and past due. It should be carefully compared with the same item in statements furnished in the past. An increase may or may not be due to natural causes such as the requirements of the trade during a particular season.
Due for Borrowed Money. Any increase in this item should be offset by an increase in assets, or a decrease in other liabilities.
Liability as Surety. This is an item of more importance than is generally accorded to it. True, the liability is a contingent one, but many a man has been forced into bankruptcy by the failure of another, for whom he had become endorser.
Another item which should in the opinion of the writer appear among the liabilities, is discounted paper. When a man discounts the paper of a customer, received in the course of business, he assumes a liability for the amount, if not paid at maturity. True, the liability is contingent, but a liability nevertheless. The extent of the liability depends on the prosperity of his own customers and the care which he has exercised in accepting their paper.
Information for Retailers. The information available for the retailer is of a very different class. Here, the factor, the man himself, plays a more important part. The retailer is obliged to depend more largely on his personal knowledge and the general reputation of his customer.
The city retailer, for instance, needs to know where the man works, his salary, his reputation for paying others—his landlord, grocer, and butcher—and something about his personal habits and general reputation.
How long has he been in his present position?
Does he make frequent changes?
Does he own a home?
What rent does he pay?
Any other wage earner in the family?