Question

               

Assume you are the CFO of a factory that supplies product to a large well-known retail chain. It is your company's policy, and the general policy of your competitors, to offer product to this retail chain on credit terms of 2/10, net 30. However, it turns out that this large well-known retail chain consistently takes the 2% discount AND pays in 60 days. When pressed, the retail chain responds to all the suppliers that they can choose to either accept the payments as they currently are or lose the business entirely.

Is this ethical? Should it matter whether this practice is ethical or not? In answering these questions, describe the impact on a small purchaser versus a large purchaser.

If you were the CFO of the large well-known retail chain, how might you respond?

Answer 1

The practice by the large retailer is not ethical as it is against the agreed terms.

However, it does not matter to the supplier firm as it has no other option but to accept the existing payment of practice of 2% discount with 60 days credit.

The supplier firm can compel a small purchaser to stick to the 2/10 net 30 by refusing to supply on default of the payment terms. This cannot, obviously, be told to a large purchaser. Effectively, it becomes differential pricing.

As CFO of a large retailer chain, I would stick to the purchaser order terms. But, I may ask the supplier to change the terms to 2/60 net 60, so that there is no violation of order terms and nothing unethical.