The Financing Of Time Payment Sales

In recent years, there has been developed a system of financing especially designed to assist the retailer and principally the consumer in time payment sales.

This is accomplished by means of the so-called retail trade acceptance. In some lines of retailing, where the sale amounts to more than the average sum, and beyond the immediate means of the consumer, the merchant sooner or later finds that he can carry on many more times the amount of business conducted by him if he could extend credit, instead of sell on a basis of cash-payments. Unfortunately, the majority of consumers, in making purchases of high priced articles, are not disposed, nor have they the means, to pay cash beforehand. They would rather make periodical settlements. The merchant, however, cannot afford to sell numerous consumers on open account as he would soon find himself limited in his activities.

Practical Working Of The Plan

The practical working of the "retail trade acceptance" method of financing time payment sales is as follows: Let us suppose that a manufacturer or dealer desires to sell his products to the consumer, direct. The products above referred to may be articles of household utility.

First, the manufacturer or dealer, after completing arrangements with the so-called "acceptance corporation" or the "commercial bank" operating the plan, instructs his salesmen and clerks in all the details of the operations. Folders and other literature for their instruction, also advertising for the public, are then prepared for publicity purposes so that all factors in the transaction will understand it clearly.

The next step is for each dealer who desires to avail himself of the plan to get in touch with the so-called "acceptance corporation" or the "commercial bank."

The dealer is required to give to the bank or to the "acceptance corporation" a financial statement, upon which basis he is granted a certain line of credit, which means that he can turn over acceptances to the bank or to the acceptance corporation until he has reached the maximum established for him. These details being settled and the contract signed, the dealer is furnished with all the necessary blanks and forms. The forms consist of a "retail trade acceptance" and a "conditional sale agreement," which, upon having the signature of the consumer, or purchaser affixed thereto, evidences a lien on the goods sold, title to which does not pass to the purchaser-consumer until the entire amount of the acceptance is paid by him.

The dealer is then prepared to handle his time-payment or credit accounts on this plan. Dealers usually embody a statement to this effect in their advertising or by suitable signs. An example illustrating the operation of the plan follows:

Assume that a customer wants to purchase an article from a dealer and pay for it in deferred payments, extending over a period of one year. We will assume that the article sells for $150 and that the dealer requires 20% down. In addition to the $30 cash payment, the customer is required to pay at the same time, 6% discount on the $120 trade acceptance, which represents his obligation, and 1% of the selling price of the article, or $1.50, as fire insurance for one year for the article purchased. The dealer is required to pay a service fee of 2% of the face value of the acceptance or $2.40 to the acceptance corporation.

The transaction works out in figures, thus:

From the above, it will be noted that the dealer receives $147.60 for the article, which is $2.40 less than the cash selling price, the difference representing the bank's charge to the dealer for the service. Through this arrangement the dealer obtains cash for the sale of the article and he steps out of the transaction at once.

Should the customer fail to pay, the dealer is contingently liable. The dealer, therefore, is required as a matter of protection, to investigate his customer's credit before making a sale of a product, or he may request the bank sponsoring the plan to do it.

The dealer requires the customer to sign the conditional sale agreement which is attached to the trade acceptance. He, then draws the trade acceptance for $120 on his customer, and his customer accepts it by writing his name across its face.

Thereupon, the dealer indorses the trade acceptance and takes or sends it to the bank or to the "acceptance corporation" with which he deals, in exchange for which he is paid the face value of the acceptance, less the charges as aforesaid.

Subsequently, the "acceptance corporation" or the bank sends a letter to the customer giving the details of the transaction in order that the customer may check it up, and at the same time the bank encloses a coupon book which must be used in making payments at the bank. The days of the month on which payments are to be made are stated clearly in the coupon book, and the customer is required to make his payments as they fall due monthly, at the bank of "acceptance corporation," or through special arrangements, payments may be received by the dealer to be turned over immediately to the bank.