Systems of business—Long credits—British and United States methods versus German—Making "good" stock losses—Question of exchange—Effect upon business—Drafts and speculators—Customary terms of payment—Central American banks as agents—Prominent Salvadorean Banks—The Press of the Republic—Prominent newspapers—Some of their contributors—Central American Press Conference.
The general idea prevails among both British and North American manufacturers, who have had little personal experience of the Latin-Americans, that extreme difficulties must inevitably be connected with all—or, at least, with most—transactions conducted in these countries, as far as payment for goods is concerned. I can but observe that the Latin-Americans as a race, if not more honest than Europeans or North Americans, are by no means any less so; and probably, if sufficiently reliable information were obtainable, it would be found that these former are, as a whole, quite as ready and able to meet their foreign obligations as any class of traders in either hemisphere.
As I have, however, pointed out in another chapter of this volume, it would be extremely unwise upon the part of any firm in Great Britain or in the United States to attempt to conduct their transactions by correspondence; an Agent is indispensable if difficulties in transportation and delivery through the Customs, as well as the collection of the account when due, are to be avoided.
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In most of the Central American ports and cities, especially (in Salvador) at La Libertad, La Unión, El Triunfo, and Acajutla, the services of such Agents are obtainable. Moreover, some of the banks undertake to look after the interests of their correspondents who are recommended to them, and who are prepared to pay a fair price for the services rendered.
The usual method of conducting transactions of this kind is to draw upon the purchaser of goods for the amount of the invoice, and to negotiate the draft through some local bank, which will in the majority of cases collect the amount, provided the shipping documents be delivered in good order and are found to be free from consular or Customs-house objections. The banks, naturally, take no responsibility in the matter; and in any case the shipper should know something reliable about the firm and their financial status before entrusting them with the goods. Another mode is for the purchaser of the goods to arrange with his own bankers to open a credit with the shipping firm to be operated upon, against delivery of the documents to the bank indicated, or in such other form as may be agreed upon; while a third expedient—an unusual one, however, and not to be recommended—is to make a remittance to the buyer beforehand, either by means of a bank draft or cable transfer. The safest method to adopt is to draw bills on the importing firm at a usance,[4] agreed upon at the time that the order is taken, generally from 90 to 120 days\' sight, and to pass the bill and documents through the bank for collection or sale. The draft is[168] usually made payable in return remittance at 90 days\' sight on London, Hamburg, or New York, but this is quite a matter of mutual arrangement between buyer and seller.
American as well as British export firms are, as a rule, disinclined to give credit, while the German, on the other hand, offers as much as his customer demands. Undoubtedly the latter loses a larger proportion of his book-debts by pursuing so generous a policy; but at the same time he multiplies the orders upon his books, and he has a clever and somewhat unscrupulous way of so manipulating the accounts of his honest customers as to make them directly or indirectly liquidate the debts of the dishonest ones. How this is done I do not know, but I know that it is done, for I have the assurance to that effect from more than one German trader who has thus balanced his ledger for several years, and always without suffering any bad consequences.
That the sanctimonious and strictly conscientious British tradesman is not altogether averse, upon occasions, to pursue similar methods was shown some few years ago, when a prominent West End saddler confessed to the fact that when he took stock and found a gentleman\'s ￡5 saddle was missing, and that he was unable to remember to whom it had been sold, he instructed his bookkeeper to charge up this item to each one of the firm\'s customers. "Some," he unctuously observed, "will, of course, deny that they have had such a saddle; to these you can write and express our profound apologies for the unintentional error, etc. Those who don\'t complain will probably be unable to remember what they had and what they did not have. Let them pay. Thus we shall get square."
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And it is to be added that so careless or forgetful are the majority of the customers of a "high-class" firm in London, that 70 per cent. of those who were wrongly charged with the missing saddle paid the unjust bill without questioning it.
Adverting to the subject of granting long credit to Central American importers of foreign goods, it must be remembered that the majority of these latter are obliged to ask for this indulgence on account of the excessively large amounts which they are called upon to find in order to clear their consignments from the Customs; and also because the retail business which is carried on in these, as in practically all agricultural countries, is a long-credit one. Only the most liberal concessions of credit can secure any decisive advantage for any one of the numerous competitors in business. Additionally, it is not always possible for the importer to secure good drafts at low rates in the market. In some of the countries—and Salvador is not any exception—the market for drafts is completely dominated by speculators, evidence of which is to be found in the fact that heavy and unaccountable fluctuations present themselves at short intervals. The possibility of speculators thus controlling the market is increased by their finding in the banks—no matter how highly these may be ranked as honourably-conducted institutions—ready allies.
The question of exchange in Salvador, and the baneful effect which it has, and for some years has had, upon commerce and trade, especially upon the profitable conduct of the Salvador Railway, is more fully dealt with in another part of this volume (see Chapter XV.). But a few observations concerning the character of the exchange business in Central[170] American countries generally may not be out of place here.
In Honduras, exchange rates are often only nominal, because no regular commercial paper is to be found in the market. The large exports of minerals, bananas, and other produce, are covered, since the proprietors, who are mostly foreigners, need only the necessary amount for the wages of their labourers, and this is remitted to the country by means of drafts. The exporters, moreover, consider the premium on gold not only as profit earned upon their sales, but as representing an economy in their working expenses, since the export product and the wages for labour are paid for in silver, which naturally makes the first cost of the product much less. Drafts are in this way arbitrarily held back and kept out of the market, or prices are asked for them which are out of all proportion to the silver quotations of London and New York. So the importer in these silver standard countries, in some of which the exportation of the white metal is prohibited, finds himself compelled to wait for a favourable opportunity to buy drafts at a low rate in order to pay for his purchases in foreign countries.
The customary terms of payment for European houses are four to six months from the date of the invoice; in many cases shipments are made "to order," and the bill of lading is delivered to the purchaser when he accepts the seller\'s draft at his local bank, and in this way the customer is held to strict observance of the time when the bill falls due. In case of failure of the customer to meet his drafts when they mature, the matter is generally arranged by issuing drafts payable at sight after ninety days on London or Hamburg, with payment of interest[171] for the time they are out. The operations of having drafts accepted and remitting the funds collected through them are carried out by the large banks or private banking firms located in these countries in consideration of a commission varying between 1?2 and 2 per cent.
Open credits (that is to say, running accounts which the customer can vary in amount to suit his needs, with payment of interest, of course) are no longer granted, except by a few firms to some of their oldest and best customers.
The intelligent and not over-cautious European exporter accepts without hesitation the usual six-months terms, because he has some knowledge of these countries and their people; and he often prefers such a settlement to cash in advance, since he likewise recognizes that he is binding the customer to do more business with his firm. On the other hand, one often hears commercial houses complain that when they decide to place a trial order with North American firms which are desirous of doing business with them, and have repeatedly and insistently solicited such orders, they are required to pay cash with the order. That nobody in Central America would accept such terms, or at least very seldom, the clever Yankee business man ought to be able to see, especially as the most notable traits of the Spanish-American character are extreme sensitiveness and the need of courteous treatment.
A cash discount of 3 to 4 per cent. is not much of an inducement in a country where the usual rates of interest are 18 to 40 per cent. Some of the banks of Central America, which secure but a small and unimportant share of the business going, and which[172] pay less attention to the development of the country than to the needs of their own treasuries, often demand 1 to 11?2 per cent. monthly, with security worth two or three times the sum loaned.
There are no established commercial agencies in Central America which furnish information, but reliable information uninfluenced by personal interests can sometimes be obtained from the principal banking firms—such, for instance, in Guatemala, as the International Bank, American Bank or Guatemala Bank, Clermont and Co., Schlubach, Dauch and Co.; in Salvador, from the Banco Agrícola, Occidental or National Bank, and Messrs. David Bloom and Co.; in Panama, Messrs. Ehrmann Brothers; in Honduras, from J. R?ssner and Co., P. Maier and Co., Francisco Siercke, and Juan Stradtmann; in Nicaragua, from the young and well-respected British Consul, Mr. Albert J. Martin; and in Costa Rica from the following banks: Anglo-Costa Rica, Commercial and Sasso and Pirie. These houses are better informed than anyone else about the amount of credit customers may deserve, because, knowing the promptness with which the various firms meet their outstanding drafts, they are in a position to form a reliable opinion of the solvency of prospective or actual customers.
The Banco Agrícola Comercial has a subscribed capital of $5,000,000, of which $1,000,000 is paid up. The Reserve Fund amounts to $100,000, and Eventualities Fund to $115,180. The Permanent Director is Se?or Mauricio Duke, and the Consulting Directors Se?ores J. Mauricio Duke and Eugenio Aguila. There are two other Sub-Directors, Se?ores Rafael Guirola and Miguel Judice. Se?or F. Drews is the General Manager.
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The Banco Agrícola Comercial, which was established in 1895, has gone through more than one critical financial and commercial period, but it has come out of the ordeal with considerable credit to itself. There can be no doubt that the bank has been a great assistance to agriculture and trade generally in the Republic, nor that it has not done at all badly for itself, which fact is seen from the last balance-sheets issued. In 1908, upon a total turnover of $14,500,000, the bank\'s profits were $145,634 (silver pésos). There was a dividend of 8 per cent. paid to the shareholders upon the paid-up capital of $1,000,000 (pésos) after all charges for administration had been met, and a substantial addition made to the Emergency Fund. In 1909 the total amount of business transacted figured at $16,200,000 (silver pésos).
The following summary of the bank\'s financial transactions and position over a period of three years will be of interest:
Cash. Commercial Accounts Accounts Circulation.
Paper and and bearing
&n............