Would it be poor management to have large accounts payable and accrual balances even if they...

Would it be poor management to have large accounts payable and accrual balances even if they are paid on time? Why might an organization do this?

Expert Solution

Ans. No, it would not be poor management to have large accounts payable and accrual balances if they are paid on time. Reason here is that organization is able to hold that funds in business for some time on continuous basis which it would have paid to creditors, thus avoided taking any kind of short term financing facility to finance the working capital requirements. This in turn help to reduce the interest burden on the business. On the other hand by paying to creditors within stipulated time period they might be getting the respective discounts from creditors also.

As discussed above organization would be doing this to reduce taking short term finance facilities like bank overdraft, cash credit. This will enable the organization to reap two way benefits of lesser interest and getting stated discount from creditors by making payment on time. So, Organization's management has planned it in good way and maintained efficiency in credit policy of organization.

ekkarill92 answered 1 year ago

Suggestions on the management of accounts payable

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