Payment Terms Raise Ethical Questionsback

It isn’t funny, even if Stephen Colbert can make you laugh about it.

Jeffrey Leonard, writing in the Washington Monthly, has brought to light a troubling explanation for why small businesses, generators of 62 percent of the jobs in America, are not hiring at a rate that will bring the economy back quickly.

No, it’s not too much government regulation and interference as is often vaunted by politicians but too little when it comes to protecting small businesses from the bullying of big corporations. Or you could just say that it’s bullying by the big guys.

Major corporations have started paying their invoices in 60 or 120 days instead of the long-held custom of within 30 days. That means when a hardware store sells to a Fortune 500 company, the hardware store may have a two to four-month gap between spending money and being repaid.

In other words, as Leonard says, “This, in effect, forces small businesses, which really are hurting, to make free loans to big businesses instead of being able to use their working capital.”

It may explain why “big firms are cash rich and thriving while small firms are cash poor and struggling even in a recovering economy,” he says.

Leonard is no mere pundit or crank. He is CEO of the Global Environment Fund, a growth-capital-oriented investment firm. He invests in small businesses.

And he is not the only one speaking out against the practice.

One of Leonard’s suggestions is that the government, in its efforts to support small businesses, should refuse to contract with any company that pays its suppliers later than 30 days. Of course, that suggestion means government agencies would have to pay their bills within 30 days. I can’t speak to the Federal government, but state and local governments often slow-pay as a way to stretch their dollars.

My suggestion is that the big corporations rethink the ethics of what they are doing and go back to “net 30.”

This is an ethical issue: Do unto others as you want others to do unto you.

Instead, the big guys are saying “everyone else is doing it,” that mantra of teenagers who do mean or dumb things because their friends do.

And this policy is being implemented by cash-rich companies. It’s not that they need to do it, it’s that they can do it. Kind of like Mott Applesauce cutting wages just because they could.

What happened to ethics? What happened to treating people fairly even if they are not big enough to fight you or are desperate for your business? What happened to negotiating terms instead of unilaterally announcing a change?

It would be interesting to know if those corporations taking 60 days to pay also allow their customers to slow-pay. And do they allow their customers to deduct 1 percent as a reward for paying promptly?

Harming another just because you can is bullying, whether on the playground or the business world.

Do you think paying suppliers in 60 or 120 days is fair, given no cash flow problem? Is there a side of this that I’m missing? Is this about corporations responsibly maximizing profits or does it cross the line into unethical behavior?