The Integrity of Payables
I was having a discussion with a fellow Rotarian this week who was lamenting over the fact that his largest customer has a policy of paying suppliers in 120 days! This particular corporation on the Fortune 500 list has the Gaul to include this on their purchase orders. Give them credit for honesty.
The exercise by large companies of extended payment practices is likely more widespread than most of us realize. My corporate career was as an accountant/branch controller with another Fortune 500 company that had a payment policy of 60 minimum and often 90 days. We were taught that this is a good business practice of “doing business with other people’s money” and standard throughout the industry. It is embarrassing to admit as a good corporate soldier I bought into the practice. There were numerous times when small vendors would visit asking for an exception to meet a delicate cash flow. My arrogance toward them haunts me.
Not only do the two company examples above practice slow pay, they also take invoice discounts offered regardless of the delay. As a young supervisor in the corporate accounting department one of my responsibilities was to track the success of “unearned discounts.” One might guess rightly that this was substantial.
Now as a small business owner, I know what it is like sweating over upcoming payroll and other obligations. Small businesses cannot survive for long under delayed payment practices as “word on the street” travels fast. Cash was scarce during our startup phase yet company bills were always given a priority (even ahead of personal obligations) for this reason. Business integrity is paramount for launches.
Okay, so cash flow can be uncertain at times for large companies and small. Our first real business crisis happened during the 2nd or 3rd year of operations when we ran completely out of cash. No one was willing to lend more to a company yet to establish a track record. As an accountant I should have been ahead of this yet running a business has a few more “irons in the fire” than working for corporate America, trust me. The only immediate option was to share the crisis with our staff, forego payroll for six weeks and hope they would stick it out. Fortunately for us they did and we survived the event.
A more recent example for us was the 2008 economic meltdown. During this time we were required to cut my salary and one other’s (our office manager even cried when I told her to skip my check for another cycle – now that’s loyalty!). We also went to our suppliers and negotiated terms. It all worked out and today we are growing and debt free.
The Ethical Business Pocket Guide on page 17 lists an ethical principle regarding timely payments to suppliers. Large businesses or small, we must all play by the same rules. For those on staff with the large conglomerates wise up, stop the practice of arrogance. Not only are you hurting the economy by choking small suppliers, you are giving the business community a black eye!
This post originally appeared on the Ethical Business Guide website on 9/10/2013.
