Explain the terms leading and lagging and outline the factors that must be taken into account...

Explain the terms leading and lagging and outline the factors that must be taken into account before this approach is used.

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Expert Solution

Leading is a method in which the payments which are due to the firm are received in advance, in order to increase the liquidity of the company or it can also be paid in advance to various other companies in order to to avoid certain type of risk related to those transaction.

Lagging is another method in which payments are done delayed so that the company can gain with the time period and it will help in improving the liquidity of the company and it will also provide the company with the option to delay the money because company can earn the time value on those delayed payments.

These both methods are used by different companies in order to gain competitive advantage and improve the liquidity.

Various factors which have to kept in mind by lagging and leading will be the ability of various creditors to deal with the delayed payments and the ability of various creditors to not issue with the warning signs to the companies and improving the overall credit interest rate can also be done by various creditors.

So, a company must needs to do appropriate leading and lagging in order to gain so that there should not be any cost related to this methods exceeding the benefit related to these methods.

jeff jeffy answered 1 year ago

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