Assume you are the CFO of a factory that supplies product to a large well-known

Question

Assume you are the CFO of a factory that supplies product to a large well-known retail chain. It is your company's policy, and the general policy of your competitors, to offer product to this retail chain on credit terms of 2/10, net 30. However, it turns out that this large well-known retail chain consistently takes the 2% discount AND pays in 60 days. When pressed, the retail chain responds to all the suppliers that they can choose to either accept the payments as they currently are or lose the business entirely. Is this ethical? Should it matter whether this practice is ethical or not? In answering these questions, describe the impact on a small purchaser versus a large purchaser. If you were the CFO of the large well-known retail chain, how might you respond?

Explanation / Answer

The above practice of the large retail chain is ethically wrong. If we see the terms of the business then they are very clear that any discount is available is payment is made within 10 days and also the account must be settled within 30 days. But what we observe over here that the large retail chain is misusing its status as a big client, giving huge orders to suppliers. This misuse of position is absolutely unethical if we go by the industry practice and agreed upon terms. The terms and conditions for the trade are very clear, but just because of its large market size the retailer is taking advantage of the suppliers. The practice adopted over here cannot be tolerated if the purchaser would have been a smaller firm. The delay in payment is directly affecting the revenues, in case the working capital cycle is concerned. In case of a smaller purchaser the suppliers would have immediately stopped the supply.

As CFO of the large retail chain the person should see that people sitting at such high positions must not only follow the terms but also avoid any unethical practice, which might become the industry norm and affect other businesses and suppliers. CFO himself should take adequate steps to avoid and stop misusing the size status of the firm as a purchaser and ensure that all the suppliers should be paid upon as agreed in the supply contract. Such unethical practice should be avoided at all costs.

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