By Robert H. Bean

Executive Secretary American Acceptance Council

The elevation of acceptance credits to a position second only to cash is an accomplishment of the first year of the new era in American business methods following the world war. The necessity of a change from the time-worn open account system of settling for merchandise purchased on credit has been recognized for several years. A preliminary agitation and discussion to bring this about has been carried on with special emphasis during the past twelve months by industrial and financial organizations throughout the country.

Trade and bankers acceptances are an established fact in the operation of our domestic and foreign trade. No change of whatever merit in our system of business or finance has ever or will take place without opposition. The arguments of early opponents to this system, based as they were on the idea that the old methods were good enough, have been long since met by sounder logic founded on the analysis of modern day needs, and the proponents of such arguments have steadily decreased in numbers.

The custom of selling merchandise on time and carrying the charges on open account had been so long in vogue that many did not recognize the merit of a system that would release for other purposes the more than four billion dollars tied up in frozen, illiquid open account credits. Far-seeing and open-minded students of the commercial and financial needs of the new America, however, recognized at a date closely following the action of the Federal Reserve Board that in the fullest development ofthis economically sound system of finance lay tremendous possibilities. The very small number of users of acceptances from 1915 to 1917 has increased to many thousands, made up of merchandising concerns in all parts of the country.

The basic principle underlying the use of the acceptance method of settling accounts is that it will bring about the improvement of the credit position of the individual, corporation, community and nation. That such a condition is the goal of business men and bankers throughout the world should be acknowledged without question. Next to the cash discount system it commands the highest regard, and, contrary to the impression of some, the trade acceptance method need not interfere in the slightest with the system of paying cash within a stated period and taking a discount for it.

It is not claimed by the proponents of the acceptance method that acceptances can be used with equal facility in every kind of business. In fact, it is admitted that it may not be to advantage of some kinds of business to use this system, but it is claimed that for a very large part of the commercial interests of this country the acceptance system can be used with remarkable success. It is not a cure-all for every defect in the nation's credit machinery. There is no mystery about a trade acceptance, neither is there any magic by which a bad account will be made good or relieve the necessity for continued careful scrutiny of credits by the credit departments of business houses and banks. It is simply an acknowledgment of a debt and its execution reflects credit upon the buyer as well as the seller and is the evidence of a well-organized, carefully managed business.

The American Acceptance Council has found that the acceptance method of financing is now used to some extent in practically every kind of business where goods are sold outright and where sales terms are other than cash. Many national associations of wholesalers and retailers have endorsed the system and have recommended its use by members. The American Bankers Association at its last convention reaffirmed its stand on acceptances and provided for the appointment of committees composed of business men and bankers who are to make a study of the entire question, work out a system of handling acceptances in banks and business houses, and to determine upon a reasonable charge for collection, exchange and service by banks to which these items pass for payment.

The volume of bankers acceptances has increased with each succeeding month, and remarkable headway has been made in the establishment of an open discount market in this country similar to that which has been in existence in England and the continent for generations.

As the bankers in smaller cities realize the investment possibilities of this class of paper, there will be a greater desire on their part to familiarize themselves not only with the bills offered for purchase but the circumstances surrounding their creation and the rates which they demand.

There is nothing temporarily or transitory about the acceptance system. It has been carefully studied by our financiers for several years, and that it fits in with our plan of readjustment after the extraordinary conditions through which we have passed is the combined thought of the ablest minds in our financial and industrial affairs.

The remarkable success in developing trade and industry in England and other European countries may be laid to the policy followed by bankers and business men in those countries to seek out and apply those principles which work for the greatest benefit to the commerce of the country rather than to that plan which will yield in dollars the greatest immediate return.

The demand which we face at this time is for the fullest use of our resources, and this can best be done by releasing a greater amount, if possible, of illiquid and tied up credits.

From reports gathered throughout this past year by the American Acceptance Council, it is safe to say that the progress thus far made, and the promise of still greater development in the use and operation of trade and bankers acceptances, augur well for the future prosperity of the commerce of this country.