Should companies be economically friendly?

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. 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.

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