Statement of Cash Flows Suppose a company lengthens the time it takes

QUESTION

Statement of Cash Flows Suppose a company lengthens the time it takes to pay suppliers. How would this affect the statement of cash flows? How sustainable is the change in cash flows from this practice?
The amount to be paid to the suppliers is known as accounts payable. Accounts payable are a current liability and are expected to be repaid within one year. If the company decides to lengthen the time it takes to pay suppliers it would result in an increase in the companys operating cash flows as the company holds on to cash for a longer period now and increases the time it takes to pay to the suppliers. However, doing this would not be sustainable as companies obtain their entire inventory from these suppliers¦

and it is important to maintain good relationships with them. For this, the company must pay all their dues on time. A good relationship with the supplier means that the suppliers wills offer good deals and improved products to the company and favorable lines of credit. All this will result in greater efficiency and profitability for the company.

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