Question

What are the advantages of using short-term payables for financing purposes?

1) Lower interest costs
2) Flexibility in managing cash flow
3) Ability to negotiate favorable payment terms
4) Opportunity to build strong relationships with suppliers

Answer 1

The advantages of using short-term payables for financing purposes include lower interest costs, flexibility in managing cash flow, the ability to negotiate favorable payment terms, and the opportunity to build strong relationships with suppliers.

Step-by-step explanation:

The advantages of using short-term payables for financing purposes include:

1. Lower interest costs: Short-term payables often come with lower interest rates compared to long-term financing options, which can help businesses save money on interest expenses.
2. Flexibility in managing cash flow: Short-term payables provide businesses with greater flexibility in managing their cash flow. They can quickly repay the payables when they have sufficient funds or extend the payment terms if they are experiencing temporary cash flow constraints.
3. Ability to negotiate favorable payment terms: When using short-term payables, businesses have the opportunity to negotiate favorable payment terms with suppliers. This can include discounts for early payment or longer payment terms that align with the company's cash flow.
4. Opportunity to build strong relationships with suppliers: Regularly using short-term payables can help businesses build strong relationships with their suppliers. Suppliers may be more willing to offer better pricing, faster delivery, or higher priority if they have a consistent and reliable customer.