HARDWOOD RECORD 



21 



lowest possible sales-cost. Just figure (if you think it possible 

 to figure) what it would cost you to send a salesman out to visit 

 five thousand prospective buyers and the time and expense con- 

 sumed in such an undertaking— then think on the other hand that 

 for simply a cost of from fifty to five hundred dollars you can 

 tell your story to from three to twelve thousand readers (possible 

 buyers) and all at one time, twenty-four times a year, without 

 any other cost except for the space. How many of you have 

 looked on advertising in that light? 



To write an advertisement is not the stupendous task that one 



would imagine — in fact one of the best advertisement writers in 

 the country to-day states that all one needs to possess is the 

 ability to tell a story about the goods in plain English and to 

 strictly adhere to the truth about the goods; and that after you 

 have told the story, stop. The writer has spent some years in the 

 study of advertising — he has carried on two campaigns. He has 

 also a few ideas on modern business methods. The idea in writing 

 tliis series of articles on advertising is to give the layman the 

 first principles of the science as i)articularly applied to the lumber 

 business. 



' C«ty.5-::>s:a<:/i^yxi!»:;KM!jiMt^ 



Theory and Practice of Discounts 



There are a good many business customs which appear to have 

 little logical excuse for existence; like Topsy, they just growed, 

 and probably the}' will continue in operation until Gabriel's trump. 

 One of these necessary evils is the use of the discount; it has to 

 be granted, without rhyme or reason, and the best that the lumber- 

 man or other business man can do is to see that it doesn 't wear 

 out its small welcome by bringing in its train a host of petty 

 abuses of one kind and another. 



The theory of discount, of course, is that prompt payment is 

 thereby encouraged, and the manufacturer or dealer is enabled to 

 get possession of his money and employ it profitably the more 

 speedily. On this basis, the most that ought logically to be paid 

 for prompt settlement of bills is the banking rate of six per cent; 

 in view of which the prevailing custom of granting the ancient 

 and honorable two per cent, ten days, seems rather foolish. 



In most businesses terms are thirty days net, in which the seller 

 in effect pays twt) per cent for the use of his money for twenty 

 days, certainly a large rate of interest; while in the lumber busi- 

 ness, with sixty days net the usual basis of sale, the period covered 

 by the discount, considering it as interest, is fifty days, making 

 a more respectable, but still an inadequate showing. Discounts are 

 too large, and in view of the various disadvantages to which they 

 are subjected in use, it would be well if they could be done away 

 with at one stroke. This seems to be out of the question, but it 

 is probable that the lines could be drawn in so as to make the 

 operation of the custom more favorable to the seller. 



The excessive time allowed by the hardwood man to his cus- 

 tomer in the settlement of net bills in sixty days is one of the 

 things that should be taken up and could profitably be discussed 

 by the trade. As indicated above, in most lines the limit is thirty 

 days, and there is no reason why a longer period of grace should 

 be granted in the lumber trade. The length of the period is dis- 

 advantageous also in that it encourages the purchaser, in case he 

 has not taken advantage of the ten-day period in which to get 

 his discount, to hold up the payment for nearly two months longer, 

 seeing no reason why he should be deprived of the use of the 

 money, if he is not to have an advantage of some kind or other. 



With this in view some houses have adopted the plan of per- 

 mitting a discount of one per cent on bills which are paid within 

 thirty days after arrival. This rate, be it noted, is just double the 

 legal rate of interest, again indicating the disparity between the 

 value of money in the market and in the hands of the purchaser. 

 It must be that the old phrase, "Let the buyer beware," had a 

 companion piece in "Let the seller beware," and that the latter, 

 fearing for the loss of his principal, was willing to grant a dis- 

 proportionately large discount in order to insure payment. But, 

 granting the risks of business, this idea certainly has no place in 

 modern affairs. 



A question which is sometimes debated is whether the discount 

 period should date from the time of the arrival of the invoice or 

 the arrival of the car at the buyer's station. There are a good 

 many arguments in favor of the latter plan, inasmuch as it is 

 hardly fair to expect a customer to discount a bill before he has 

 had opportunity to examine the lumber. However, this is some- 



times done subject to correction in case inspection does not tally 

 with the invoice. But it is probable that in a great majority Of 

 • cases the buyer is permitted to take the discount if he settles 

 within ten days after the arrival of the car, if not after the 

 inspection of the lumber. 



A less mooted question is whether or not the buyer should have 

 the privilege of discounting the gross bill when the seller has 

 quoted a delivered price. As a rule, sales are made with the agree- 

 ment that the discount shall apply to the net only, even though 

 the receiver of the lumber has paid the freight and even though 

 the price quoted applied to delivery. The point is truly made that 

 freight charge itself is not subject to discount; and therefore that 

 to discount a gross bill means to force the seller to accept a 

 definite loss on the part of the price represented by the freight. 

 The argument on the other side is at least specious, in that the 

 price at which the lumber was bought was the delivered price, and 

 that the freight was paid as a convenience to the seller and to 

 enable him to enjoy the use of his money. Few concerns attempt 

 to squeeze out a discount of this small nature, however, though 

 there are one or two hardwood buyers who put a clause to this 

 effect in their orders and decline to purchase under other condi- 

 tions. Doubtless, however, prices quoted to them are fixed at a 

 point intended to take care of the loss through the application of 

 excessive discount. 



It is in the veneer and panel trade that most use is made of 

 this theory, and more than one manufacturer admits that he is 

 compelled to allow discounts on bills which include the cost of 

 transportation. This being the case, it looks as if the thin lumber 

 manufacturers ought to get together on the proposition and make 

 a point of refusing to allow the discount, for it is not justified by 

 general custom nor warranted in the premises. 



The lack of uniformity in customs pertaining to discount is 

 regrettable, in view of the fact that any concession in the dis- 

 count amounts, of course, to reducing the price; though this is 

 something that is not always understood as thoroughly as it should 

 be. And it should also be remembered that prices are fixed on a 

 basis of cost and expense without ordinarily taking into account 

 the fact that the result is to be subject to discount. Thus net 

 profits are nearly always less than had been figured on a basis of 

 theory, because of the fact that the sawmill man, as has been 

 pointed out in Hardwood Kecokd before, is forced to grant dis- 

 counts and is able to take none; inasmuch as log men are usually 

 wise enough to sell their offerings f. o. b. their own station at a 

 net price which does not permit the buyer to whittle the amount 

 down through the use of a discount. And the log men are 

 right, too. 



The worst feature of all, though, is not in granting too much 

 of a concession in the terms of discount, but in not adhering to 

 them strictly after they are made. Collections are invariably poor 

 with lumbermen, and real money looks pretty good to the man 

 who himself has bills to meet and discounts to take advantage of; 

 hence the buyer who is small enough to resort to petty practices 

 is too often permitted to get away with it. 



In fact, a large furniture manufacturer told with considerable 



