“Surviving the credit crisis”, Financial Post, Tuesday, October 28, 2008
This article talks about how companies are trying to survive what is becoming the worst credit crisis in generations. With banks collapsing, the U.S. economy rapidly shrinking and high oil prices, companies are trying hard to stay in business. The article also talks about how liquidity is the key to staying in business since all recent mega-failures in the U.S. was due to the lack of liquidity. Also, the article suggests that businesses should reduce their credit risk without losing customers by offering early discounts to riskier customers. It is very important that money is received since it is not a sale if you don’t get paid.
In chapter 12, we learned about accounting for cash discounts. We learned about the different terms of sales companies have for their customers. For example, some businesses will give a cash discount if the bill issued is paid within a certain amount of days before the invoice date. This article relates to chapter 12 by talking about how offering early discounts is beneficial to businesses. By offering early cash discounts, it can ensure that the company receives the amount due, and make customers happy. As we learned in the chapter, the purpose of a cash discount is to encourage customers to pay promptly.
In my opinion, I think that offering early cash discounts is an efficient way of making sure the company receives money from its customers. I agree where the article talks about how liquidity is the key to running a business. The companies with more cash flow will be able to survive longer. Also, with growing economic problems, I think that it is extremely important for all businesses to try to maximize liquidity. As I said earlier, cash discounts are a great way to receive cash faster, increasing liquidity. With the U.S. economy quickly shrinking, and dropping consumer confidence, businesses will have to work harder to increase liquidity and try to stay in business.
http://www.financialpost.com/story.html?id=914649&p=1
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2 comments:
I do agree with your article that many businesses are trying to offer the cash discount policy so that customers can save money while spending. However, I do not think it is that efficient due to the drawbacks of cash discount. When there is cash discount, sellers tend to increase prices as much as it is then so that he or she can figure out whether or not the selling price high enough to cover the loss arising from this deduction. Thus, although seeing the word "discount" may be attractive, however in reality they are not saving that much.
Having limited liquidity does seem to be the main factor that leads to the closing down of businesses. Their suggestion of offering early discounts is definitely one way of capturing the attention and desire of customers. Even people who normally hold onto their wallet tightly won’t be as likely to be able to resist the temptation of the sale discounts. Just the other day in Business Communications class, a pair of girls presented a current event to us on an article on tips on how to avoid being affected by the economic crisis that we’re going through. One of the tips that really stood out to me was, “spend more time but not necessarily more money on advertising”. With the access to internet becoming so effortless, the amount of users is rapidly increasing. Online advertisements are a quick and cheap way to get directly to the target market. There is even ways that have as close to no cost such as Facebook or MySpace. By making groups on the sites that existing customers can join, they are advertising to their hundreds of friends who could become aware of that brand/company. Now with the economy putting citizens into positions where the times are tough, it is causing businesses to put on their thinking caps to come up with ways to attract more sales.
K. Li
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