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WORKING CAPITAL
The Golden Rule Doesn't Apply to Working Capital
Posted by Tim Reason | CFO.com | US
November 10, 2008 10:28 AM ET

With the usual caveats about how unscientific an online poll is, I'd point out that our current homepage question, "Has your company deliberately slowed its payments to vendors in the past month?" has now received over 200 votes with 47 percent saying "yes."

As former IBM and Chrysler CFO Jerry York warned way back at our CFO Rising conference last March, now is the time to "watch your receivables like a hawk."

I suppose it is encouraging that our poll shows slightly less than half of respondents admitting to paying with a slow hand. But aour CFO Rising conference in October, a number of CFOs told us they were slowing payments to vendors and stepping up their receivables collection.

Chalk up two more victims of the financial crisis: the Golden Rule, and any corporate sense of irony.

Comments (1)


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Tim,

You point out a very perplexing problem. How can we expect others to pay timely and us to pay slow?

The answer is always the squeaky wheel. When you slow payables maybe 30-40% of your vendors will be on top of their game and contact you for payment. That means 60% will accept the slow payment terms.

If you are a fast tracker on receivables, you will be one of the 30-40% looking for collections in a timely, agressive manner. End results, you win the temporary cash flow game necessary in today's marketplace.

The big question is how focused is management on being in the 30-40% gainers?

Golden Rule for any sustainable success story is disciplined, focused action in four areas - in good times and in bad: Revenue Growth, Cost Control, Enhancement of Profit and Increases in Cash Flow.

The companies that focus management effort in these areas are truly successful long term.
Posted by Diane Dutton | November 10, 2008 10:39am

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