Presto

PRESTO
10
SAFETY FOR EXPORTERS
It May Be Effected in a Large Measure by the Success of an Approved
Scheme of Foreign Credit Insurance.
TRADE AND CREDIT PROBLEM SOLVED
George R. Meyercord, Chicago Manufacturer, Explains the Protective
Benefits of the Plan to Exporters, Bankers and
Foreign Buyers.
The financial responsibility of foreign merchants
is one of the most important considerations in the
export question for American manufacturers. The
impositions of unscrupulous importers and export
agents have turned the enthusiasm of many a po-
tentially successful exporter into despair. The his-
tory of exporting is filled with efforts to find a
solution.
To effect foreign credit insurance at reasonable
cost is the scheme to which George R. Meyercord,
of the Decalcomania Co., Chicago, has given much
attention. Mr. Meyercord, who is president of the
American Manufacturers' Foreign Credit Under-
writers, at the recent convention of the National
Foreign Trade Council at San Francisco, explained
how foreign credit insurance benefits the manufac-
turer, the handler and the foreign buyer and de-
scribed the requirements of an international credit
insurance company.
In the issues of the Manufacturers' News of June
3 and 10 an article by Mr. Meyercord tells how ex-
port business is made safe. He writes in part as
follows:
Foreign Credit Insurance Exchange..
Two years ago at the Cincinnati meeting of the
Foreign Trade Council I suggested roughly a plan
for the insurance of foreign credits, as seeming to
provide a sane means of supplying that all-important
need of all of us who are in export trade or want
to be—a knowledge of the financial status of foreign
merchants and a reasonable safeguard in our busi-
ness transactions with the individual. Great inter-
est was shown to exist and many letters were re-
ceived by me from manufacturers urging the forma-
tion of a company.
The net result is that officials of the Illinois Man-
ufacturers' Association, and with its approval, last
year organized the American Manufacturers' For-
eign Credit Insurance Exchange, a reciprocal mutual
company for the insuring of foreign credits. The
plan has been worked out in great detail and at
much expense, and for the past half year our staff
of foreign credit experts has been engaged in com-
piling and rating credit risks in the various world
markets, and the insurance of foreign credits will
be a reality by midsummer.
Acting for all the members at the exchange will
be a national board of advisers, or trustees, which
will administer the trust funds, determine policy and
procedure, etc. The business of the exchange will
be transacted through an attorney-in-fact—the
American Manufacturers' Foreign Credit Under-
writers. To participate in the benefits of this re-
ciprocal insurance the manufacturer or firm must
be accepted into the exchange. No insurance is sold
to non-members.
Foreign Drafts.
There will be a master policy which will cover
all foreign draft business. As the various individual
shipments arise for insurance coverage, insurance
will be granted in the shape of a certificate to be
attached to the master policy. The initial payment
or premium deposit is determined by the amount of
such foreign business as the manufacturer would
do—his normal exports. One per cent of the gross
volume will be the basis of the premium deposit.
As is customary in mutual life and fire insurance
companies, at the end or during the course of the
policy year, the premium deposit will be adjusted
on the actual amount that has been at risk.
When the exchange has issued as much insurance
on any one consignee as his financial strength jus-
tifies, it will refuse to insure further shipments to
him until part of the line is cleared.
The solvency only of the debtor is insured. Non-
acceptance of the merchandise by the customer or
refusal of payment is not covered. However, this
is covered by a protective clause in the contract
which provides renewal insurance. In other words,
if the shipper has a dispute with his customer on
the quality of the merchandise, the quantity shipped,
the packing, or for whatever reason a dispute arises,
renewal insurance on the risk under dispute will be
issued pending its settlement. This renewal insur-
ance is available by the payment of an additional
premium for the extra time involved.
This scheme of insurance is predicated of neces-
sity on the compilation and publication of foreign
credit guides for the different world zones in which
we shall operate. At present we shall cover five
zones—Latin America, Australasia, Africa, the Far
East and Orient, and the Scandinavian countries.
For obvious reasons we are keeping out of the war-
ridden zones, but the remaining world markets will
be covered as trade conditions warrant.
System of Credit Guides.
Each credit guide will contain the names of re-
sponsible foreign importers in its respective zone—
merchants, manufacturers, public service corpora-
tions, plantations, etc.—names which are insurable
unless otherwise marked. In addition, the credit
guides will contain the things you want to know
about the foreign customer—his line of business,
the maximum individual line that the exchange will
insure, and the rates of insurance. The rates given
are predicated on sight draft with bill of lading at-
tached, the thirty to ninety day time draft, four
months' and six months' draft and open account.
It will be possible for any manufacturer to take
an order, for instance, from a firm in Rio de Janeiro
and sell that concern on ninety days' open account,
as you would locally, and the insurance would be,
say, one per cent with the guarantee that the firm
will not fail during that period of time and that, if
they fail or commit any act of bankruptcy, the ac-
count will be paid in full.
Let us look at the benefits to the exporter, pres-
ent and potential. First, he is insured against in-
solvency of the debtor for the full amount, at net
cost. The cost of insurance is such a small per-
centage that the manufacturer will find many sav-
ings otherwise, as is apparent, that will more than
offset the cost.
The renewal insurance provision prevents the
jeopardizing of his bank discounted bills receivable.
The credit guides will do more than list insurable
names of foreign houses. They present to the man-
ufacturer his market in that respective zone or coun-
try, a list of what distributors he can approach in
safety and those to avoid.
Foreign Business Made Safe.
The manufacturer's representative will be able to
approach the foreign buyers whose names appear in
the guide as insurable, in full confidence that they
are reliable and that an order from such sources
will be acceptable at the home office, with no ques-
tion of its being filled. It eliminates the problem
on the part of the traveler as to whether the mer-
chant is a good risk. It saves time in signing up a
risk and in acceptance by his home office. And it
allows him to accept terms that make him com-
petitive with exporters of other countries.
The credit guides present a guaranteed list of
foreign merchants for direct mail advertising and
solicitation; permit the manufacturer or his repre-
sentative to follow the obvious correct rule of so-
liciting orders; and cut down the waste of sampling,
a gross evil in American foreign trade.
Insured accounts make it unnecessary for the man-
ufacturer to demand of the foreign merchants the
establishment of a confirmed bank credit or a de-
posit with orders as a guarantee of good faith.
The manufacturer who carries all the liability
upon bills receivable limits his credit for doipg more
business. Insured bills receivable add to his work-
ing capital.
Without insurance, the amount of business on
time draft that the individual manufacturer can af-
ford to carry is limited by his capital. The insurance
exchange adds another name to the paper and the
bank logically is willing to give larger discounts
and to take an increased amount of the paper. In-
sured bills are of prime quality from the bankers'
standpoint and are negotiable at the lowest prevail-
ing discount rate.
The insurance would enable the manufacturer to
figure accurately on export price quotations and to
July 31, 1920.
meet prevailing and competitive terms of sale. And
the facility of selling insured bills would be almost
equivalent from the manufacturer's standpoint to
doing export business on a cash basis.
Because of the insurance safeguards and the credit
guides the manufacturer is able to deal direct with
the foreign merchant. He learns to know his cus-
tomer, he gets closer to the market and is able to
intelligently merchandise his product as in domestic
trade.
Considered Favorably by Banks.
The attitude of the banks toward our mutual in-
surance plan is naturally most favorable. Banks
instantly recognize that insurance on foreign credits
through the medium of the insurance exchange is
of tremendous benefit to the American manufac-
turer and that it will obviously increase the volume
of foreign business in the United States. Likewise,
they recognize that such a service will be of im-
mense value to themselves as it adds further safe-
guards to discount paper, the addition of the ex-
change making it three name paper. With such
added security it is logical to assume that such will
be approved as federal reserve paper. With these
benefits in mind banks have been whole-heartedly
co-operative in making the project a success.
Local banks will be able to discount foreign bills
receivable in confidence; in fact, the local bank will
stand in the nature of a clearing house for the in-
ternational banks.
The possibilities before the exchange, in tne di-
rection of corrective measures, are apparent. The
establishment of foreign credit insurance will auto-
matically diminish trade risks by forcing exporters
and importers to conform to standards. A record
of bad practice or continued neglect on the part
of the exporter or too many refusals to accept
goods, without the very best reasons, on the part
of the importer, would soon result in his being
classed a bad risk with a high premium on his busi-
ness.
The exchange, through its machinery, will have
such a close knowledge of foreign markets and the
character of both importer and exporter that care-
lessness and crookedness will be reduced to a min-
imum. The foreign merchant who has made a
practice of ordering goods, only to refuse accept-
ance on the chance of making a profitable com-
promise with the shipper, cannot continue his prac-
tice because the exchange, through its many chan-
nels of information and the ledger experience of
members, will have a complete record of dealings
with any specific importer.
On the other hand, the manufacturer who makes
a practice of carelessness in foreign dealings, ma-
liciously or otherwise, will be discovered. Many
refusals to accept consignments of goods are not
from dishonest motives on the part of foreign mer-
chants, but because of a wide range of misunder-
standings between buyer and seller.
The fact that the exchange reduces guesswork to
almost certainty in passing on credits means insur-
ance at lowest cost—as against the resulting high
rate if the exchange insured questionable risks.
The credit guides present a market to the manu-
facturer—a list of potential distributors whose re-
liability is a known quantity.
The insurance exchange will provide a channel
through which information of the broadest kind will
be available, now unavailable through any one or
more sources.
Through its mutual features the cost is reduced
to a minimum—insurance at much less cost than
could be offered by any proprietary or stock com-
pany and probably cheaper than a bank would be
willing to buy paper on an account "without re-
course."
Through its exercise of libel and seizure of goods
in transit to a foreign merchant who becomes in-
solvent, the maximum salvage will be possible and
the loss to the exchange reduced to a minimum.
Protection Cost Small.
In putting the basic rate at one per cent for the
premium deposit, while in itself low, we feel that
we are allowing ample to cover all requirements.
At the same time, and looking ahead to when the
exchange has been in operation for a couple of
years, we anticipate that the rate will be lower.
Then, of course, we must not forget this is a mutual
company and that all unused premiums are return-
able to the participating members of the exchange.
The approval and endorsement of the plan has
met our expectations. Those associations before
which we have so far had an opportunity to place
it have put their O. K. to it-^the Illinois Manufac-
turers' Association, the West Virginia Manufactur-
ers' Association, the Tanners' Council, and others.
The latter for some time had its own committee
working on the formation of a mutual plan, but
after careful study of the detailed plan evolved by
the organization committee of the American Manu-
facturers' Foreign Credit Insurance Exchange adopt-
ed it as their plan and formally endorsed it.
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