Statement of Cash Flows [LO4] 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?
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Increasing the payables period increases the cash flow from operations. This could be beneficial for the company as it may be a cheap form of financing, but it is basically a one-time change. The payables period cannot be increased indefinitely as it will negatively affect the company’s credit rating if the payables period becomes too long.