licWiiiMittA^tji;u}m:!)X' Kuwa>TOa'^^ 



>i>^xKKy.v'-^'.'^'vi':j:-i'^z-2^ii^: < ;j:s;;mfS^^ 



5* 



Discounts Versus Profits 



No greater slogan has been evolved by modern commerce than 

 this: "One Price Only." The passing of the day of barter was 

 brought about by the recognition on the part of the merchant 

 that haggling was not only bad for the buyer, but equally bad for 

 himself. Painful experience proved beyond cavil that variable 

 prices furnished a stuffed club which could be wielded with telling 

 effect on prices by the skilful barterer, and that while the mer- 

 chant might recoup by charging excessive prices on other items 

 wherever possible, the system was uncertain and unsatisfactory 

 at best. 



The lack of recognition of this fundamental of modern mer- 

 chandising in the lumber business is due largely to conditions in 

 the trade which cannot easily be altered. The fact that there is 

 a difference of opinion as to intrinsic and market values of lumber 

 on the part of various individuals in the business, naturally means 

 that lumber will be offered at varying prices, and the stress of 

 competition requires the lumberman to offer his stock at one price 

 here to meet current quotations, and at another there, to get in 

 line with the quotations buyers have received on the stock. Thus 

 the tendency to equalize prices, rather than to hold to a single 

 price standard, ip almost impossible to overcome, and the adoption 

 of an invariable list which will not be deviated from is not a 

 practicable proposition as far as the rank and file are concerned. 



Prices are not cut and shaded and squeezed and hammered and 

 juggled as the only means of changing values; more insidiously the 

 plan of making "terms to suit," as the instalment houses say, 

 has won its way even among members of the trade who believe 

 that their lumber is worth a certain price and who insist on getting 

 it. It is likely that few hardwood men realize the losses that they 

 are suffering because of the fact that their prices are not net, and 

 that the buyer is practically able to make his own terms in pay- 

 ing for the material. 



A prominent lumberman in one of the leading markets recently 

 said that he didn 't make any money last year, although the volume 

 of business was equal to the year before. 



"Of course, .it was pretty difficult to sell lumber during 1911," 

 he conceded; "but taking that into account, I am still persuaded 

 that something else is wrong. We should have made a better show- 

 ing on the business handled, and the only possible explanation that 

 I can see is that we gave our customers too much leeway about 

 settling their bills." 



Discussion of the same question with other members of the 

 trade indicates that the lumberman quoted above came pretty close 

 to hitting the nail on the head. When you quote a price, and make 

 it clear in your invoice that payment is to be made on a basis of 

 two per cent discount in ten days, net thirty, do you insist that the 

 customer pay the full amount of the invoice if he sends you a 

 check four weeks after the lumber is shipped? Or if he pays in 

 sixty days and you have made it plain that your terms are net 

 thirty, do you charge him for the accommodation at the rate of six 

 per cent per annum — which is probably what you have been paying 

 the bank for the use of the money you got to tide you over until 

 the delayed collections came in? 



Probably you do not; you may reason in the one case that the 

 buyer didn 't have enough time to unload and inspect the shipment, 

 and that the delay in the arrival of the stock gave him the right 

 to more time in settling that than the letter of the law permitted. 

 So the two per cent that came off at the end of thirty days was con- 

 signed to oblivion, and incidentally the profit record for the year 

 shrank imperceptibly the while. 



An elastic system of discounts and the extension of accommoda- 

 tions as to terms is the most graceful way of cutting prices and 

 the easiest way to hide money, without being able to account for 

 it, yet devised by the brain of man. The difSculty, from the first 

 standpoint, is that not much advantage is gotten from it as a sell- 

 ing argument, and the seller is usually so little aroused as to the 

 losses which he is suffering from this source that when he sells a 



bill of lumber, he does not realize, even though he knows that his 

 customer will discount the bill when he gets good and ready to pay 

 for the stock, that he is getting less than the invoice price for his 

 lumber. 



Take a concrete example. Suppose a car of quartered oak is 

 shipped on a basis of $45 a thousand. If a two per cent discount 

 IS to be taken, the price is cut down ninety cents a thousand. 

 That's pretty close to one dollar, and probably the seller would' 

 have refused an offer of $44 a thousand for the stock, and would 

 have to be argued with to be convinced that his lumber is going 

 for just about that amount. If 15,000 feet are loaded into the car, 

 the discount on the shipment amounts to $13.50, and reduces 

 measurably the profit made on the sale. This is assuming that the 

 discount is taken in the legitimate ten days usually granted. Under 

 that condition, it is pretty bad; but when the customer takes five 

 weeks and then deducts the discount, it comes pretty close to being 

 highway robbery. 



The losses suffered through discounts hit the sawmill man harder 

 than anyone else, for the reason that the wholesaler has a chance 

 to even up in buying lumber from other people. But did you 

 ever stop to consider the situation of the manufacturer? He pays 

 cash for everything, and his bills are discounted by everybody. 

 His timber is not only paid for in that manner, but frequently the 

 timberman secures an even better proposition, getting some money 

 down when the logs are contracted for, more when the trees are 

 cut and the balance when they are loaded f. o. b. the timberman 's 

 station, so that by the time they actually reach the mill a con- 

 siderable amount in interest has already accumulated on the in- 

 vestment. 



Then there is labor to pay for, which is a cash item; and the 

 freight bills, for the railroads are canny enough to have the 

 "Nothing Doing" sign in evidence when it comes to discounts. 

 At that it is likely that their own purchasing agents seize a two 

 per cent discount on every bill that shows itself inside the office. 

 Be that as it may, the sawmill man gets a chance to discount bills 

 only for supplies and machinery, and these are ordinarily not suffi- 

 cient to offset even a small fraction of what he loses through the 

 discounts of the other fellows. 



"I figured the thing out the Other day," said a sawmill man 

 disconsolately, in discussing the situation, "and I found that 

 taking my business on an annual basis, I lose 60 cents a thousand 

 in discounts. If I could eliminate that, my business would be a 

 splendid money-maker; as it is, I'm lucky to be able to look my 

 creditors in the face and tell them to have a drink. Sixty cents a 

 thousand is a pretty heavy load to carry, considering all the others 

 that we must shoulder; and that is one reason why I think the 

 jobber has it easy. He can frequently buy lumber outright, sell 

 it, collect his money and then pay the seller, discounting his bill 

 meanwhile, even though sixty or ninety days may have elapsed. 

 And I don't blame him at all for doing it, if we sawmill men are 

 sufficiently well developed boobs to stand for it." 



Getting back to the question of the effect of discounts on 

 prices, it can be said that the discount system proper is so firmly 

 rooted that it would be next to impossible to abolish it; but 

 every lumberman, especially if he realizes the fact that profits are 

 being shaved down closer all the time, should see that his terms 

 are well understood by his customers and are adhered to in settling 

 accounts. 



Corporation Tax 



The federal corporation tax has become a law of the land, and 

 any sensible business man will view it as such. The tax must .be 

 paid not later than June 30, and the law provides for an additional 

 levy of five per cent of the amount left unpaid ten days after notice 

 has been filed by the collector. An additional tax of one per cent 

 for each month after June 30 will make disregard of the law 

 rather an uncomfortable proceeding. 



—37— 



