BusinessCorporate FinanceShould companies be economically friendly?

Should companies be economically friendly?

Should corporate and social responsibility extend to the payment terms big business imposes on it suppliers?

Gavin Hinks, AccountancyAge

If a company is concerned about its impact on the environment and society, it
should also consider the economic impact of its payments terms.

AccountancyAge.com blogger Martin Williams, managing director of
Graydon UK, drew attention to the problem this week when he noted that Alliance
Boots had extended its payment terms for suppliers to 75 days. It’s a shocking
move given the weight of argument in favour of better terms and, as Williams
points out, Alliance Boots’ own stated interest in promoting the health of the
nation and treating customers fairly.

So why shouldn’t the company treat its suppliers as fairly? If sales fall in
the current downturn, payment terms become an aggressive and damaging way of
managing cash flow.

This is an old bugbear, but in a less than flourishing economy, a reluctance
to release payments could have a devastating effect. Surveys have found big
companies waiting more than 100 days before they pay, so Alliance Boots is not
the worst offender, but the chemists’ actions signal a cynical move to control
cash by holding on to funds for as long as possible.

The people who suffer most will be the smaller suppliers operating without
the scale of their much larger clients. Legislation to improve the position has
not worked because suppliers are too concerned about the possibility of losing
clients if they begin to impose interest on their fees.

Government needs to take a stronger line, while companies need to recognise
that their pledges to CSR will remain superficial unless they see fairness to
suppliers as an integral part of the responsibility agenda.

comment@accountancyage.com

Related Articles

Grant Thornton recruits new corporate finance partner

Accounting Firms Grant Thornton recruits new corporate finance partner

10m Emma Smith, Managing Editor
Total fraud value at £2bn five-year high, finds BDO

Accounting Firms Total fraud value at £2bn five-year high, finds BDO

11m Stephanie Wix, Writer
MHA MacIntyre Hudson appoints corporate finance director

Accounting Firms MHA MacIntyre Hudson appoints corporate finance director

11m Stephanie Wix, Writer
Tyrie on Finance Bill 2017: ‘Making Tax Policy Better’

Consulting Tyrie on Finance Bill 2017: ‘Making Tax Policy Better’

11m Stephanie Wix, Writer
KPMG announces senior partner promotion in Newcastle

Accounting Firms KPMG announces senior partner promotion in Newcastle

11m Stephanie Wix, Writer
Independent city firm reports 70% growth

Accounting Firms Independent city firm reports 70% growth

11m Stephanie Wix, Writer
Tax avoidance crackdown sees 80% jump in additional HMRC revenue

Accounting Firms Tax avoidance crackdown sees 80% jump in additional HMRC revenue

11m Stephanie Wix, Writer
Making Tax Digital: the "unexpected item in the bagging area"

Accounting Standards Making Tax Digital: the "unexpected item in the bagging area"

11m Stephanie Wix, Writer