Academic journal article Journal of East European Management Studies

Late Payments Explained by Ethical Culture *

Academic journal article Journal of East European Management Studies

Late Payments Explained by Ethical Culture *

Article excerpt

Introduction

In the framework of corporate governance and management, the problem of enterprises' payment discipline should be understood more broadly than simply just as an ethical problem. In the context of various models of integral management (e.g., Rüegg-Stürm 2002; Thommen 2002; Spickers 2004; Mugler 2008), which are based on the multi-layer integration of governance and management with an enterprise and its environment, the models consider the fundamental aspirations (desires) for the enterprises' existence and, thus, enterprises' quantitative as well as qualitative changes (Belak Jan. et al. 2014). Such models deal with problems in enterprises in both the horizontal and vertical integration of the enterprises' governance and management processes, instruments, and institutions into a consistently operating unit. The process, instrumental, and institutional integrability and integrity of the governance and management is also the initial condition for the implementation of all other integration factors. The MER model of integral management defines various enterprise success factors: ethics, culture, philosophy, synergy, entrepreneurship, ecology, efficiency, competitiveness and coherence. In addition, to improve the model, several studies were carried out to ascertain the importance of these success factors, as well as the importance and the influence of ethics and enterprise culture as essential factors for ensuring the enterprise's success and long-term existence (Belak Jer./Mulej 2009; Duh/Belak Jer. 2009; Belak Jer. et al. 2010; Duh et al. 2010; Belak Jer./Hauptman 2011; Belak Jer./Milfelner 2011; Belak Jer./Milfelner 2012; Belak Jer/Pevec 2012; Belak Jer. et al. 2012; Milfelner/Belak Jer. 2012; Belak Jer. 2013; Belak Jan. et al. 2014; Belak Jer. et al. 2014; Duh/Belak Jer. 2014; Hauptman/Belak Jer. 2015; Salamon et al. 2015). Some previous studies have been conducted on the payment discipline; however, none of these explored the influence of the enterprises' ethics and culture on their payment discipline. Therefore, the main focus of the present research was to explore the enterprises' payment discipline in relation to their ethics and culture.

Payment discipline is considered an enterprise's practice of fulfilling financial obligations toward suppliers in a timely fashion. Despite quality service or regular delivery, a large proportion of payments in the business-to-business (B2B) market are made late. As much as 80% of sales in the B2B European Union (EU) market involve deferred payments, and as many as 98% of enterprises have received late payments from their customers (Euler Hermes 2006: 3,5). The consequences of late payments are "reduced liquidity, more difficult financial management, financial and administrative costs, narrowing of investment options, reduced competitiveness and reduced profitability" (Commission of the European Communities, 2009: 6, 13). For nearly all of the Central and Eastern European countries, membership in the European Union was one of the primary policy goals. Linking the economies of Central and Eastern Europe to those of the European Union's first 15 states is generally considered the principal means of securing future growth prospects (Oplotnik et al. 2011), and late payments have a negative effect on intra-community commercial transactions (Commission of the European Communities 2008: 1).

In periods of economic downturn, the risks related to the negative effects of late payments increase (Official Journal of the European Union 2011: 1), and the "recent crisis has underlined how important market failures in the financial sector are" (Allen/Carletti 2013: 242). Because of late payments, the existence of approximately 35% of European enterprises is under threat (Commission of European Communities 2009: 46), with small and medium-sized enterprises suffering more than large ones (ibid.: 13-14).

It can be argued that payment discipline depends on the financial health of the enterprise - in particular, on liquidity, since liquidity is defined as the ability to fulfil the financial obligations of an enterprise. …

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