Flutterby™! : A bribe by any other name...

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A bribe by any other name...

2003-10-29 18:00:31.402096+00 by Dan Lyke 2 comments

Interesting article on kickbacks, slotting fees and other enticements in sales.

A thornier problem arose when the company's first big account (a very large hotel-cleaning-products distributor that makes up 50 percent of Harry's total sales volume) asked Harry to "shelter" income by printing invoices at a higher cost than it was paying. The distributor requested this fudge because it resells the products to a company that pays "cost plus" -- just 10 percent on top of the invoiced cost -- which means the distributor's profit is small or nonexistent.

[ related topics: Business Ethics Economics ]

comments in ascending chronological order (reverse):

#Comment Re: A bribe by any other name... made: 2003-10-30 15:29:23.521844+00 by: petronius

It seems to me that eventually all these fees and rebates will begin to cancel themselves out. For example, the $2.00 extra that Harry adds onto the case of mops is going back out to the customer. It doesn't seem to add anything to anybody's price except Harry's paperwork. Maybe the issue is what happens to that $200.00 rebate check he writes to the distributor. How does it get entered onto the distributor's books? Is he booking it in such a way that he pays less taxes than he would by getting a $2.00 per case discount?

Back in the 90s the Pharmor drug store chain used cash slotting fees from national brands as the fuel for a massive accounting fraud. They faked sales of products to get fees, and in turn used that money to pay off older creditors. As in all pyramid schemes, when you lose money on every transaction doubling the volume won't help. The law of gravity cannot be violated.

#Comment Re: A bribe by any other name... made: 2003-10-30 21:53:11.579858+00 by: Dan Lyke

Yeah, it's not like the end cost to the consumer changes, it's all about moving money differently in the intermediate stages. It's the buying agent exchanging personal gifts for having the company he works for pay more, in the example I quoted it's a distributor asking "Harry" to be complicit in contract fraud, but unless there's collusion that's just people who are lying about what their business really costs to run, and if everyone's doing it then there's no higher end price.