The above illustrates the great hazard in doing business on credit
during inflation. The extreme instability of the dollar in 1946 is shown by a
range of 3.2 per cent net gain (by reason of a decline in the price level) on
the thirty-day payment of September 1st bills receivable, to a loss (by reason
of price rises) of 15.5 per cent on the ninety-day payments of June 1st bills
receivable. The average for the whole period was a loss of 3.0 per cent on the
thirty-day payments and 6.2 and 8.5 per cent respectively on the sixty and
ninety-day payments.
Since business profits generally average only about five per cent on sales, it
will be seen that "credit losses" alone, in the period reviewed,
wiped out profits, to say nothing of losses sustained by shrinkage of capital
and reserves.
(Close)
|