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CFA Level 1
Corporate Finance

Accounts Payable Management Trade-offs

Medium Working Capital Management Accounts Payable Management

Scenario: ABC Corporation is analyzing its accounts payable management to optimize its working capital. Currently, the company has an accounts payable turnover ratio of 6 times per year and a payment period of 60 days for its suppliers. The management is considering extending the payment period to 90 days to improve cash flow, but they are concerned about potential impacts on supplier relationships.

Question: What is the primary trade-off ABC Corporation should consider when deciding whether to extend its accounts payable payment period?

Hint

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