Derek Dilworth, owner of a small manufacturing firm, is trying to deal with the firm's thin working capital situation by carefully managing payments to major sup-pliers. 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. Dilworth'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,” he believes that the suppliers will go along with him rather than lose future sales. This practice enables Dilworth's firm to operate with sufficient inventory, avoid costly interruptions in production, and reduce the likelihood of an overdraft at the bank.
Question 1 What are the ethical implications of Dilworth's payment practices?
Question 2 What impact, if any, might these practices have on the firm's supplier relationships? How serious would this impact be?