The American Institute of CPAs (AICPA) has called for the Treasury Department and the Federal Reserve to create a federally backed short-term accounts receivable lending facility that would allow companies to deal with the cash flow shortfalls brought on by the coronavirus crisis.
In an open letter to Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell, AICPA said businesses were experiencing “significant slow-downs” in payments and the “extraordinary” economic conditions have made companies hesitant to take on normal risk.
“The AICPA has observed a continuing need for short-term liquidity in the marketplace. In such an unexpected downturn, businesses have had to deal with the challenge of harnessing enough cash while still maintaining other types of short-term assets, such as inventory, in order to continue their business operations,” the letter, from AICPA chief executive officer Barry Melancon, said.
Under the proposal, companies could pledge their future receivables under an arrangement with the federal government that would create cash flow for 90 to 180, the AICPA says.
The proposal comes as the Bureau of Economic Analysis reports that the U.S. economy contracted at an annualized rate of 4.8% in the first quarter, with much of the global economy on lockdown to meet social-distancing requirements imposed in response to the pandemic.
The Bureau of Economic Analysis said consumer spending declined at a 7.6% annualized rate during the quarter.
AICPA said under its proposal, the Federal Reserve would commit to lend to a special purpose vehicle (SPV) that the Treasury would make an equity investment in under the Coronavirus Aid, Relief, and Economic Security Act.
The lending facility would be open for one year and loans would not need to be repaid for six months.