The coronavirus disease 2019 (Covid-19) pandemic has put extreme pressure on micro, small and medium enterprises (MSMEs). In the US, data from Yelp shows that 97,966, or 60 percent of business closures due to the pandemic are now permanent. In the Philippines, at least 90,000, or 6 percent of its 1.4 million MSMEs remain closed due to pandemic-induced extended lockdowns, according to the Department of Trade and Industry. These raised unemployment in many countries to unprecedented levels.
Even big businesses reported steep declines in revenues in the first half of the year. One strategy they employ in times of crisis is lengthening supplier payment terms, which puts MSME suppliers in a vulnerable situation. As a business owner myself, I have seen how large companies that have been profitable before the pandemic stretch payment terms to small suppliers and contractors in order to manage their liquidity. On the other hand, customers of large companies are being pressured to pay on time, threatening discontinuity of services.
One global group of small advertising agency suppliers, VoxComm, said: “We are hearing from our members all around the world that many of those same ‘corporately responsible’ companies are using the [Covid-19] crisis to delay paying their agencies. Late payment is a pernicious habit that even cash-rich companies employ to falsely enhance their liquidity ratios. It is directly at odds with their avowed policy of CSR (corporate social responsibility),” according to PYMNTS.com.
Despite these, many big businesses continue to uphold acts of social responsibility, especially to their MSME suppliers. As an example, L3Harris Technologies, an American technology company, accelerated more than $100 million worth of payables to small businesses, with other initiatives, including investment in staffing and equipment, also focused on bolstering the company’s vendor base, according to Space Coast daily.
Another is Ford Motor Co., which is reportedly using $35 billion in cash reserves to allow it to accelerate payments to its suppliers, according to PYMNTS.com. Other major conglomerates here and abroad have increased credit loss allowances to account for defaults among customers.
This is the essence of social responsibility in times of crisis, where big businesses not only take care of their employees and shareholders, but also other stakeholders, such as small contractors and MSME suppliers and customers, which also need to ensure their survival and take care of their employees.
Extending payment terms and payment relief to small customers, and continuous business with and prompt payment to MSME suppliers, can have impactful multiplier effects on society as a whole. Through it, MSME customers and suppliers, which employ millions in the country, can better weather this pandemic storm and retain their employees.
While the “The social responsibility of business is to increase its profits,” as the title of economist Milton Friedman’s 1970 essay in the New York Times had put it, he also said acts of social responsibility were “one way for a company to generate goodwill as a byproduct of expenditures that are entirely justified in its own self-interest.”
The shareholder value of big businesses has increased manifold in the last decades; this is the time to ”generate goodwill” with customers and suppliers.
The author is the chief executive officer of Hungry Workhorse Consulting, a digital and culture transformation consulting firm. He is a fellow at the US-based Institute for Digital Transformation and country representative of the Institute of Change and Transformation Professionals Asia. He teaches strategic management in the MBA program of De La Salle University. The author may be reached at rey.lugtu@hungryworkhorse.com.