Cotton warehouses in the South
The mill, we have seen, frequently pays cash for its raw stock, or else buys upon short term notes. The average mill does not have a working capital large enough to enable it to tie up the thousands of dollars necessary for such a proceeding, as well as the funds which must constantly be paid out for wages, for operation expenses of all kinds, for upkeep, and all other overhead. Mills, as a matter of fact, are frequent borrowers, either from general banks, or from textile banks or factors, or from their selling agents, who, as we have seen, combine their primary and original function of selling with that of supplying financial assistance.
Mills which purchase cotton from their buyers and pay cash, or approximately cash, for it, usually buy such cotton to fill orders which they have already received from their selling agents. They may, in certain instances, obtain an advance from their agents of a proportion of the whole selling price of the order, and out of that advance pay for the purchase of cotton, or they may hold the cotton in warehouses, using it only as needed, and putting up the warehouse receipts as collateral for loans.
The raw cotton itself, however, represents only a portion of the mill’s operating expenses and it cannot be the entire basis for financial operations of the magnitude often needed. These broader financial wants may be met out of the prospective selling price of the cloth by means of loans from the selling agent; or, they may be met by direct relations with a commercial bank, which may make loans on ordinary collateral, on acceptances, or, as frequently happens in the case of mills of undoubted integrity, on the mere note of the company operating the mill.
Selling Agent May Shift
Burden to Banks
When the burden is assumed by the selling agent, or factor, he in turn may shift it to the bank, either by indorsing the note of the mill, or by indorsing the note of the purchaser of the cloth or by borrowing directly from the bank on his own paper. 37
The converter, as a rule, is not a factor, but a merchant pure and simple, seeking accommodations from a factor or a bank as his needs may require it. Inasmuch as he usually buys for cash or on short-term notes, and sells to jobbers or retailers upon more extended terms, his needs are frequently heavy. His relation with his factor may be, and frequently is, upon the basis of accounts receivable, or he may borrow upon his own collateral, or, if he is counted an "A1" risk, upon his unsecured note.
These, in brief are the financial steps in the progress of cotton from the grower to the jobber. A cursory view is all that is possible, because in the words of a textile banker of standing "every textile banking transaction is a law unto itself." Yet enough has been said to show the all-important part which banking plays in the cotton industry, and to indicate how dependent are the turning of wheels and the distribution of cotton and of cloth upon the credit which banks and bankers are able to provide.
Factors and Their Wide
Financial Service