Jonathan Tandy, owner of a small furniture manufacturing firm, is trying to deal with the firm’s thin working capital situation by carefully managing payments to the company’s major suppliers. These suppliers extend credit for 30 days, and customers are expected to pay within that time period. However, the suppliers do not automatically refuse subsequent orders when a payment is a few days late. Tandy’s strategy is to delay payment of most invoices for 10 to 15 days beyond the due date. Although he is not meeting the “letter of the law” in his agreement, he believes that the suppliers will go along with him rather than risk losing future sales. This practice enables Tandy’s firm to operate with sufficient inventory, avoid costly interruptions in production, and reduce the likelihood of an overdraft at the bank.
1. What are the ethical issues raised by Tandy’s payment practices?
2. What impact, if any, might these practices have on the firm’s supplier relationships? How serious would this impact be?
3. What changes in company culture, employee behavior, or relationships with other business partners may result from Tandy’s practices?