Question

Pros and cons of fast payments to accounts payable:

A. Pros: Improved cash flow; Cons: Possible strain on supplier relationships.
B. Pros: Enhanced creditworthiness; Cons: Increased interest expenses.
C. Pros: Decreased expenses; Cons: Limited cash flow flexibility.
D. Pros: Strengthened supplier relationships; Cons: No impact on financial stability.

Answer 1

Option B is the most accurate, where the pro of fast payments to accounts payable is enhanced creditworthiness, and the con is increased interest expenses.

Step-by-step explanation:

Pros and cons of fast payments to accounts payable can be nuanced, but let's evaluate option B as the most accurate: Pros: Enhanced creditworthiness; Cons: Increased interest expenses. By paying suppliers rapidly, a company demonstrates financial responsibility, which can improve its creditworthiness.

This means the company is likely to be seen as more reliable by lenders and may be offered more favorable credit terms in the future. However, if these fast payments are financed through borrowing, such as taking out a short-term loan, it can lead to increased interest expenses, which is a legitimate concern for any business trying to manage its finances effectively.