The next post to be considered is that of the discounts and collaterals. It is in the discounting of bills and notes that the banks find their main source of revenue; the department is, because of this and other facts, one of the most interesting of the lot.

How The Banks Facilitate Commerce

A very large proportion of the business of the country is done on credit. Wholesale merchants sell to retailers on two, three, or four months' time. Generally, a purchaser of goods may take the cash discount if he settles his bill in one month from the date of the shipment of the goods. Thus it happens that for a large part, even of his so-called cash sales, the merchant has to wait for his settlement. If he sat down and waited till his debtors remitted cash on the maturity of their respective accounts, he would find that an extensive part of his capital was all the time in the unproductive shape of book debts.

At this point the bank becomes useful. By means of it he can bridge over the time between shipment of goods and maturity of account. He may take notes from his debtors or draw bills of exchange on them, and, getting them discounted at the bank, he may have the use of the money represented in his sales very soon after the shipment of goods. In other words, the bank buys the debts due to him when they are put in a certain form.

It waits for the maturity of each debt and then collects it. And so with other bills and notes: when they are properly drawn, domiciled at accessible points or places, when the parties signing them possess the requisite degree of credit, and when their unexpired term does not exceed three or four months, the bank stands ready to buy all that may be offered, providing they come under the designation, "Legitimate banking transactions," and providing the bank's own position is such as to permit it to undertake the purchasing of them.

Handling Of The Discounts

The discounts call for two different kinds of work, one of which has a much greater degree of responsibility than the other. The higher, more responsible department decides what bills shall be taken, and on what terms and conditions; it must also watch the movements of the parties to the discounted bills and keep itself posted as to changes in their circumstances. The other department concerns itself with the clerical work necessary in connection with the discounting, recording, safekeeping, and reporting of the bills, on their being accepted or taken by the bank. It is this clerical work, or a large part of it, that falls to the officer performing the duties of discount clerk.

The clerk's first acquaintance with the discounted bill comes about immediately after the customer has succeeded in inducing the manager to discount it. He will have been instructed beforehand in the system of signs by which the manager indicates what rate of discount and of commission is to be charged on the different bills. These signs should tell him, too, in what class or denomination each bill is to be entered in the discount register.

Of course the manager's initial must be on every bill. The initial, when put on by the manager himself, signifies that the bank accepts the bill for discount, and authorizes the clerk to calculate the proceeds, and to credit them to the account of the party for whom the bill is discounted.

A Question of PracticeAn interesting question as to practice arises here. The customer, be it remembered, is shown or admitted into the manager's office. He has with him the bill or bills he wishes to get discounted. When the manager decides to accept the paper, what is the best method of getting it into the discount clerk's hands? The easiest way is for the manager to initial the paper, mark it with the proper signs, and then hand it back to the customer, allowing him to take and present it at the discount desk. Though this method is practised at some of the smaller branches, it is not the approved method, as it offers too much opportunity for loss by fraud. Three of its dangerous features are: first, the customer might make some substantial alterations in the paper after receiving it back from the manager and before presenting it to the discount clerk; second, the customer might forge the manager's initial and duplicate his signs on paper that was never presented to him at all; third, he might draw cash on a bill that the manager had agreed to discount for the purpose of taking up another bill or for some other specific purpose.