Question

Discussion : Amazon’s Cash Flow

Amazon.com immediately receives cash from its customers when sales occur on its website. When the company stretched the number of days taken to pay its suppliers from 63 to 72 days, this created a huge jump in the company’s accounts payable balance, which helped increase free cash flow from $346 million to $1.36 billion. In one quarter, Amazon’s sales increased 28% but its accounts payable nearly doubled, causing a 116% increase in free cash flow.
Do you think managers should increase cash flows by delaying payments to suppliers? What are the pros and cons of doing so?

Answer 1

Managers may choose to delay payments to suppliers to increase cash flows and potentially reinvest in the business. The pros include improved cash flow and potential for growth, while the cons include strained supplier relationships and negative impact on reputation.

Step-by-step explanation:

Managers may choose to delay payments to suppliers in order to increase cash flows. This strategy can help a company like Amazon increase its free cash flow and potentially reinvest that cash into the business for growth. The pros of delaying payments to suppliers include improved cash flow and the potential for increased reinvestment in the business. However, there are also cons to consider, such as strained relationships with suppliers and the potential for negative impacts on the company's reputation.