Discussion Post
Discussion 5: Vendor Discounts Contains unread posts Includes assessment. Must post first. Vendor discounts for early payment are can be attractive for a firm. Discuss the issues and difficulties that can keep a company taking an advantage of those discounts. What are some of the ethical issues that can arise?. Support your answer with at least one credible source which you cite in APA format (both in-text and reference entry). 1. Discussion 5 –Vendor Discounts _ Sabrina Benjamin Sabrina Benjamin Mar 16, 2018 4:15 PM Discussion 5 –Vendor Discounts _ Sabrina Benjamin Vendor discounts for early payment can be attractive for a firm because it allows the firm to improve their bottom line. It aids them in building successful relationships with their customers and hence, sometimes those customers might use the same services and other suppliers that aid the firm. (Jackson, 2010). For instance, the organization or firm that I work for, offers vendor discounts to a lot of the larger oil and gas companies. We are an environmental consulting company that requires relationships with suppliers to obtain geotechnical and environmental servicing equipment to run the monitoring of contaminated sites. I have provided vendor discounts to many companies that I am trying to obtain projects from or offered volume discounts. Especially if the firm (or oil and gas company) has a greater return (or a lot of work). In fact, an article written by Pinkerton (2005) discusses some of these issues that vendors face. In the oil and gas downturn of 2014, I experienced this behavior with many clients asking for ridiculous price reductions. This caused severe layoffs within our organization, and a feeling that was not very fun. There are however some situations that may arise when facilitating vendor discounts. One is when firms stretch accounts payables, they might harm their reputation and the vendor might never get paid. The next one is vendors might force the firm to pay up for more timely payments. Bendixen & Abratt, (2007). Some of the ethical issues that might arise are that the firm might jeopardize the vendor to ruin their relations with their suppliers. With firms stretching accounts payable, this could upset investors as this would heighten operating cash flow. Gitman & Zutter (2015) 2. Vendor discounts Enyioma Nwogwugwu Mar 10, 2018 2:54 PM Vendor discounts Vendor discounts are deductions given by the suppliers and vendors for early payments and bulk purchases. These discounts can be up to 2-3 percent and save the firm a lot of money on accounts payable and significantly stabilize their working capital ratio (Moran, 2011). Most businesses are not able to take advantage of the early payment discounts due to inability to process their invoices on time. Most vendors offer a ten-day payment time frame before you have to pay the full amount due, and when the invoices are processed manually, ten days is not always enough (Miller, 2012). Fortunately, technology has improved processing times, so there's more of an ability to capture discounts, by using automated systems and processes. Another difficulty organizations face, which limits them from taking advantage of vendor discounts, is the unavailability of the cash flow. If they don’t have the money for accounts payable, the invoices can’t be processed in time for the discounts. But if there’s adequate communication between the accounts department and the vendors, this can easily be rectified. However, ethical issues can arise when vendors ask for certain concessions in exchange for discounts and deals. O’brien (2014) cited an example of a potential vendor that offered to give a firm a lower price for their product if they paid cash--but they asked that they don't report the payment on a 1099. The firm is then faced with having to choose between a good deal and running a legal business with accountability. The principles of the Institute of Management Accountants Statement of Ethical Professional Practice include honesty, fairness, and the responsibility of members to act with integrity, and firms are supposed to uphold these values regardless of their situations. Reference Moran, P. (2011). Competitive edge how early payment discounts can help your business. Accountancy Ireland, 43(1), 41-43. Retrieved from http://national.edu/docview/87821384 Miller, P. (2012). Are You Taking Full Advantage of Vendor Discounts?. (2012). Managing Accounts Payable, 12(8), 1-11