You’re a supervisor in the treasury department of Big Corp. Recently there has been increasing concern about the firm’s rising interest expense. Fred Eyeshade is an analyst in your group who transferred from the accounting department a short time ago.
He has suggested that senior management mandate a 50% across-the-board cut in cash, inventory, and receivables along with a doubling of payables to reduce the firm’s financing needs for net working capital. Explain why this might not be a good idea with respect to each of these elements of net working capital (four accounts).