Accounts payable

Question 1

The role of accounts payable

Answer 1

To establish trade credit. It is the simplest and most important source of short-term finance the money entities..

There is a balancing act between liquidity (delay payments to suppliers to obtain a free source of finance) and profitability (delay too long difficulties for the company in the long term)

Question 2

Problems that occur when delaying payment suppliers

Answer 2

Suppliers may refuse to supply in the future

Suppliers may only supply on a cash basis

Loss of reputation

Supplies may increase price in the future