The Fourth Quarter Games Have Begun! | AccountingWEB

The Fourth Quarter Games Have Begun!

By Anita Campbell - It's almost exactly the middle of the 4th quarter of the fiscal year for most American companies. The race for 4th quarter earnings and cash flow numbers is well underway. And you know what that means!

CFO Magazine recently wrote about the fourth quarter dash for cash, noting:

Let the games begin.

The working capital games, that is. Right now, companies all over America, in every industry, are beginning a dash for cash. If past is prologue, many companies will go to great lengths to slash their working capital in the fourth quarter. The goal: to paint a beautiful picture of their cash flows by December 31 -- one suitable for framing in the annual report.

To that end, companies will grant extremely favorable terms to customers, and make liberal use of discounts and rebates. They will step up their collection efforts, even as they hold back on paying their vendors. They will push inventory orders back on suppliers. They will do everything they can, in short, to free up cash from receivables, payables, and inventory, the components of working capital.

So what does this mean to you and your clients? Well, it depends on the size of the company you work for or represent.

If you are on the side of small companies that sell products and services to these big corporations, then you're on the receiving end of these cash machinations.

Notice the part I bolded in the quote above, about holding payables. Yep, it's going to be the small vendors' payables that get held.

There's a good chance that if your small company or client hasn't been paid by now by big customers, they are not going to receive payments until after January 1, 2008. Or at the very least December's payable will be held back.

The thing to tell your clients is, in the words of Michael Corleone, "it's just business." Chances are, the corporate contact who hires the small vendor isn't even aware that Finance is holding payables. You see, that internal corporate contact is not in charge. Finance-with-a-capital-F is running the show until the 4th quarter ends.

When I was young and naive in the corporate world, it wasn't until I got calls from my vendors and service providers asking "what gives" that I learned that Finance was holding payables. Of course, eventually I just came to expect it every 4th quarter. But there usually wasn't much I could do to speed things up. It wasn't my call.

Now that I run my own small business and know that other small businesses and independent contractors rely on me, too, in their food chain, I really feel caught in the middle of the Q4 cash dash. Like many small businesses, I often feel wedged between outstanding invoices owed me and the bills my company owes.

So what's a small vendor to do? Batten down the hatches and watch your own cash like a hawk in Q4. If necessary, make sure lines of credit are flowing to make it through to 2008 when the payables faucet turns on again.

You know the drill ... just make sure your small-business clients do, too.

Bloggers crew

Steve Knowles has spent 25 years in business and practice in the UK, but he also worked in the states and the years haven't dulled his way of seeing an alternative view to everyone else, and every day is a new adventure.


Joel M. Ungar, CPA is a lifelong resident of the Detroit area and a graduate of The University of Michigan. He is a principal with Silberstein Ungar, PLLC, a Top 15 auditor of SEC public reporting companies.


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