10.13 Delaying payments to payables

Question 1

How can delaying payment to payables create short term finance?

Answer 1

Moneys which would be spent on paying payables now can instead be used closer to the end of the fixed term, thus saving money in the short term.

Question 2

Why can delaying payment to payables be dangerous for a company?

Answer 2

Delaying too long could damage credit and supplier relationships.

Question 3

What are the advantages of delaying payments to payables?

Answer 3

• helps cash retention which can be used for other purposes

- opportunity costs from investment etc. can be realised in the short term

Question 4

What are the disadvantages of delaying payments to payables?

Answer 4

• possible reputational cost from loss of good will
• credit damage
• loss of suppliers from defaulting on payment
• loss of benefits from suppliers who provide incentives such as early payment discounts