Prime the pump
March 23, 2018

Trustworthiness provides sustainable competitive advantage

“You have been weighed and have been found wanting. You stand accused of abusing your suppliers by forcing them to wait for months before their invoices are paid. You are sucking the blood out of the economy and bullying businesses that are not in a position to fight back.”

These are expressions that have been used in research articles to label companies that withhold payments, affect cash flow and restrict businesses from thriving. While it has been determined that one of the factors responsible for late payments is the fact that customers are waiting for payment themselves, a reputation for trustworthiness can provide sustainable competitive advantage.

Philippa Foster Back, the director of the Institute of Business Ethics, said paying suppliers late is an abuse of power, bully behaviour by customers and a scandal that affects the lives of many. She said “When it comes to business ethics, companies focus on employees potentially doing “bad” things – fraud, bribery, corruption. When in reality, it is the seemingly little things which show the true colours of a company’s culture.”

In February 2017, Bekezela Phakath, referring to a new study that measures the effects of late payment on small businesses, said the study reveals that late payment has caused cash flow issues for 31per cent of respondents, while 18 per cent blame them for reduced morale and 16 per cent feel late payments result in reduced productivity. Other articles, including one from Gerald Hutching entitled “Large Companies Killing Small Businesses By Withholding Payments,” stressed that as a result of late payment 23 per cent of managers cannot hire new employees, 79 per cent of business owners cannot pay themselves, 23 per cent cannot invest in new equipment, 20 per cent can’t spend on marketing and 18 per cent hold back on pay increases or bonuses for employees.

Philippa Foster Back is also of the opinion that if suppliers are not treated with respect, then customers, employees, investors – society at large – are not likely to be either.

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