http://www.financialpost.com/story.html?id=914649&p=2
Summary
This article talks about the many ways to improve liquidity for companies since the Canadian economy hasn’t been too great the past few while. This article teaches how companies can survive the credit crisis. Some things to improve on is to keep track of weekly cash flows. Another important thing is to reduce accounts receivable, and to be able to follow up on it since companies tend to forget to pay their bills. A helpful tip is to offer cash discounts, so you don’t lose your customers while trying to get your payments in earlier.
Connection
Chapter 12 is about synoptic journal, but it also talks about cash discount. “Cash discount is a reduction of the amount of a bill if payment is made on or before the discount date stated on the bill.”[1] This article connects with chapter 12 since it talks about decreasing the credit risk by offering early payment discounts. So, if a business is in a bad state, with a large amount of account receivable, it would really help to have their own terms of sale with the customers to encourage earlier payments, so incoming cash flow increases.
Personal Response
I think that the biggest problem for businesses is that their payment policies are too lenient. Paying within 30 days is normal, but some companies do allow up to 60 days to receive their payments. This can really bring down their cash flow coming in, and without cash, the companies will not survive. I think all the tips in the article are really helpful, and if businesses actually use them, they could have a longer lasting company. The cash discounts is an awesome tip, since not only will you not lose any customers, but you are encouraging customers to pay their bills sooner since I’m sure everyone would love to have discounts.
[1] Accounting 1 – Fifth Edition
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3 comments:
I believe a global downturn of the economy is a bad news for everyone. With tips like these, it would be helpful for many small and large businesses to survive a time like this. I would agree with you on the point about business not to extend their cash discount period for their customers. It will only bring down the business profits and cash flow amounts. At a time like this, businesses need the money to pay off their debts. As we know, citizens wouldn’t spend too much money when the economy is going downhill. Consumers should have confidence to go shopping so that we can ease the global economic crisis.
-joanna.w
I think the author of this article is pretty wise in terms of economics. As a student in the business department, I encourage cash discounts for large corporations. Indeed, I strongly agree with the concept of collecting the desires and interests in the customers, while guaranteeing your payments. By offering them a small discount, the following things can be easily granted. Accordingly, they could also introduce any varieties of online advertisements, such as Facebook. Since the access of internet has been efficient and easy in our society, it will be a cheap way of advertising for the company. But on the other hand, offering too much on discounts may reduce your possible profit. In addition, since our recent economy is declining, large corporations may have the potential in losing customers. As everyone knows, the top goal of any business is to maximize their profit. In the end, it is up to the financial status of a business to determine how much cash discount and advertisements they should offer to their respective customers on their purchases.
- A. Tao
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