TAX CONTROL OF CREDIT IN DOMINION BUSINESSES.

Star (Christchurch), Volume LXVI, Issue 20543, 19 February 1935, Page 6

TAX CONTROL OF CREDIT IN DOMINION BUSINESSES.

Need for Co-operation Stressed in an Address to Accountants.

(Special to the “Star.”) AUCKLAND, This Day

“Enquiry since my return to the Dominion, after an absence that has entailed more than fifteen years of intensive work in other lands, leads me to express the opinion that the granting of credit by many commercial houses in New Zealand is decidedly lax. Credit I have observed to be granted in the Dominion under conditions that would not for a moment be tolerated in certain other countries. The granting of credit in New Zealand seems to be practically universal. It seems to be much easier to obtain credit to-day than it was in the days I recall — twenty-five and thirty years ago. Possibly selling competition is keener, but I doubt if this is more so than in other countries.”

In these words did Mr Wilfrid H. Hemingway, F.P.A.N.Z., conclude his address on “Credit Control” to the third convention of the New Zealand Society of Accountants, which began at Auckland to-day. Mr Hemingway’s address Was a lengthy one and dealt with many phases of credit, ranging from international negotiations to the affairs of a single business. Phe remainder of his conclusions are as follows:

JpROM what I have gathered the percentage of bad debts to volume of business done is higher in New Zealand than in other countries, especially when compared with Canada and the United States, where credit and credit control are subjects for professional specialists. Canada, indeed, has been called the “ home of credit control,” and both Britain and the United States have acknowledged they have learned much from our sister Do-

Zealand, very often, I find, the accountant to a business house—the commercial or registered accountant —has (with no extra remuneration) the position of “ creditmanager.” thrust upon him. I have even heard of cases in which it has been sought to engraft the responsibility of the creditman on to the auditor of a going-concern! Nor is this all. Frequently, the “accountantcreditman ” does not receive that assistance to which, in the circumstances, he is entitled from the selling department of

minion of the Northern Hemisphere. Thanks to the results of continual research, the regular compilation of relevant statistics and the publication of reports, bad debts of late years in Canada are shown to have been enormously reduced. In many lines they have been diminished to less than one-quarter of one per cent, and in some cases to less than one-eighth of one per cent. Danger of Inefficiency. Although in New Zealand we hpar much about “economic planning,” we have so far heard little about commencing with those bases of modern business—finance and credit. We do not seem to recognise, as we should, that more often than not a bad debt is the result of want of foresight, of guessing rather than investigating, of neglect to have secured necessary information before the transaction was allowed to be entered into —in other words, to inefficiency—sometimes on the part of the credit-grantor, sometimes of the creditgrantee, and sometimes on the part of both. Certainly in New Zealand nothing like the same measure of care is taken to obtain essential particulars concerning creditseekers that is taken in other parts of the world. Similar records are not sought and preserved, nor are particulars of financial position and operating results obtained and recorded with the care that they are in Canada and the United States. New Zealand business houses seem to be reluctant about making inquiries concerning prospective credit-seekers. They seem afraid of hurting their feelings so that the customers will transfer their “ favours ” to houses that are not so inquisitive. The house which grants credit most readily may secure the largest share of trade, but when bad times come it usually finds itself with a disproportionate amount of its working capital tied up in book debts' and so a serious hindrance to the weathering of the storm. You will find, if you make inquiry, that the business houses that are most lax in their granting of credit are those which almost invariably are the greatest offenders in the matter of “ price-cutting.” There is little or no combination —little or no concerted action — among business houses in New Zealand governing a uniform method and scope of credit inquiry. • Need For Co-operation. Do not imagine I am blaming the accountant for this. By no means. In New

the business. There are still some who seem to imagine that the requirements of the accounting department of a business are entirely subordinate to the wishes of the selling department. We have still much to do in the direction of educating “ business men ” in New Zealand. I have come across concerns with selling departments whose sole object is to make “ sales ” and who are diffident of giving information to the accounting department. Such lack of co-operation and co-ordination adds to the volume of bad debts. In some cases there seems to be well-nigh a conflict of interest between the selling department and the accounting department of a business. ,The point is, perhaps, illustrated in its most simple 1 7 n by the attitude of certain salesmen who strongly resent any check or criticism upon the financial standing and stability of the customers from whom they take orders. New Zealand requires not only greater co-operation between selling and accounting or credit-managing departments in the same business, but also greater co-operation between business and business —one might almost say, between industry and industry. This could be forthcoming without abusing confidence, or divulging information of a private nature, or telling too much to competitors. The result would be better business and fewer bad debts. Let us recall that not only is credit, judiciously granted, availed of at appropriate times, entered into for legitimate purposes and in reasonable amount, good for everybody, but credit injudiciously granted is, in the long run, as disastrous to the grantee as to the grantor. Need For Combination. The whole subject bristles with difficulties, particularly when it is approached from the view of retail credit. Here, in many lines, we find the granting of credit to be practically indispensable. We have but to consider the case of the purveyor of foodstuffs—the retail sale of groceries, bread, meat, milk and so forth> Perhaps here, one particular obstacle lies in the fact that the ordinary retailer cannot, as the wholesaler, afford to join and so secure the benefits of the Creditman’s Association. If credit-grantors would only combine, the greater part of the mischief resulting from the granting of ill-considered credit could be practically eliminated. The keystone here is co-operation, and there is not sufficient of it among businessmen and business houses in New Zealand.