Impact of Extending Accounts Payable on Cash Flow

Very Easy Working Capital Management Accounts Payable Management

A company is considering changes in its accounts payable management strategy to optimize its working capital. The management is looking primarily at the payment terms they have with suppliers. They want to know how extending payment terms could impact their cash flow.

Which of the following statements best describes the potential effect of extending accounts payable payment terms on a company's cash flow?

Extending payment terms will always reduce the total cash outflow.

Extending payment terms can improve cash flow by allowing the company to retain cash for a longer period.

Extending payment terms increases the cost of goods sold (COGS) for the company.

Hint

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