Question

Scenario: You've just been hired as the assistant treasurer of a specialty retail chain of nine stores. Your main responsibility is to maintain the company's high credit rating by paying all bills when due and taking advantage of all cash discounts.

Your manager instructs you to continue preparing all checks "net of discount" and dating the checks the last day of the discount period. "But", he continues, "we always hold the checks for at least four days beyond the discount period before mailing them. That way we get another four days of interest on our money. Most of our creditors need our business and don't complain. If they do complain, we blame it on the mail room or the post office. We've only lost one discount of every hundred we take this way; I think everybody does it."

Discussion Requirements:

1. What are the ethical considerations in this situation?

2. Who are harmed or benefited?

3. Should you continue the prior practice regarding taking purchase discounts?

Remember to include an online reference cite that you utilized to prepare your response or provide background information (only URL needed, formal citation format not necessary).

Answer 1

1. By making late payments, debtors have to forego their discounts or end up paying interest and also impact their credibility adversely. However making late payments and taking advantage of the discount by lying by putting the blame on post office or mail room is unethical.

2. Undoubtedly the creditors and the mail-room/post office will get harmed here. Trade credit is a major source of working capital provided by creditors to debtors. The creditors invest their financial resources and sell goods to the debtors. Any delay or default in payment will cause injury as they lose their financial resources or employ resources for no returns in the course of trade. Delays may impact them adversely as the creditors may need to depend upon external financing like bank overdraft for financing their working capital. Moreover the debtor unethically taking discounts causes extra losses to the creditor. Hence dual disadvantage. Lastly, the blame on post office/mail room can impact the credibility and reputation of their services too.

The debtor gets double benefited by this unethical practice. Firstly he takes wrongful advantage of discount plus earns extra interest on money lying in his bank which was supposed to be paid to the creditor.

3. As explained in 2 above, these practices have no commercial wisdom and must not be practiced. They may benefit the debtor but such practices are baneful to the market trade principles and practices.