CASH ORDER SYSTEM.

Manawatu Herald, Volume XLIX, Issue 3853, 4 October 1928, Page 1

CASH ORDER SYSTEM.

OPERATION EXPLAINED. A good deal has been heard lately of the “Cash Order” system of doing business, the following will give an idea of its “modus operandi” which is as follows: — A company is formed which finances householders so that they may obtain the advantages offered to cash customers by various retailers. Borrowers are given to understand that they are obtaining money at a low rate of interest with which they can purchase their requirements at the stores at cash prices. A Melbourne company advertised that those making use of the system could obtain goods at cash prices at the small cost of a half-penny per £1 per week; in other words, that they might- get a cash discount of perhaps a shilling in the £1 by paying the cash order company a half-penny. Traders were told that by accepting these cash orders from their customers they would increase their turnover considerably. One trader, with a turnover of about £16,000 a year found his business grow to £40,000 but to his surprise his profits declined. Bo he asked his auditor to investigate, with the result that it was found the cash order company was actually receiving a commission of 15 per cent. This led to further investigations by an actuary, who found that one cash order company was getting a return of 234 per cent, per annum on its money. The borrower had first of all to pay a premium of 5 per cent, on the arnount of his loan, then in most cases 5 per cent, as the first weekly instalment before the order was actually issued. The retailer who supplied the goods on the security of the order frequently did not receive payment from the cash order company for two weeks after the goods had been delivered, during which period the company would have received from the borrower two further instalments of 5 per cent. each. The retailer also allowed the company a commission of 15 per cent, on each sale. The net result in these circumstances was that for every £5 order issued the company actually paid out only £3 5s and obtained an effective interest rate of 449 per cent, per annum on its advance, assuming that all payments were regularly made and the money immediately reinvested in a similar manner. The system was cleverly advertised, but it required only a little thought to see that there was a. catch in it somewhere. The ease stated above where 449 per cent, was earned, was no doubt an extreme one, but Sir George Elliot stated that in Auckland traders are paying up to 12A per cent, commission to the company, while the borrowers are paying 18 or 19 per cent, for the money they borrow thus giving the company about 30 per cent, on its money. This is probably a very cautious statement of the transactions. Of course, the cash order company have to take some risk with their advances, but the possible profits are. such to enable them to afford the risk.