RECESSION? WHAT FORTUNE 500 & OTHER BLUE CHIPS CAN DO TO MITIGATE 1
One of the greatest problems of a prolonged recession is the downward spiral that corporations (large & small) cause by their survival strategies. As companies downsize & cutback, unemployment causes loss of purchasing power in the market place which make companies bring down production levels which causes more unemployment which causes more loss of purchasing power . . . etc etc.
One survival strategy which contributes to downsizing and cutbacks is the knee-jerk reaction of finance managers. In a recession, they almost automatically shorten accounts receivable and lengthen accounts payable. This has the double whammy effect of slowing down the circulation of funds in the economy. The buyers-production-supply chain becomes starved for cash for purchases, working capital and operating cash.
Fortune 500 & Blue Chip companies remain profitable, recession or not. They can well 
afford to do the opposite of the standard financial management strategy of short accounts receivables & long accounts payable during a recession. Without undermining their revenues and bottomlines, they can in fact double their accounts receivable days (encouraging buyers to purchase) and decrease by half their accounts payable days (thereby giving much needed relief to their suppliers) –a case of Big Brother Corporation extending a helping hand to Small Business Kid Brother. This will increase the velocity of funds in circulation in the economy and will help arrest a downward spiral.
images from Microsoft Clipart, reconstructed by Ren Garcia
Tags: accounts payable policy, accounts receivable policy, downward spiral, economic collapse, economic depression, economic indicators, recessionRelated Stories
POSTED IN: Accounting Concepts, Accounting for NonAccountants, Accounts Payable, Accounts Receivable, Best Business Practices, Small Business Finance
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