320 db4 - unable to repay the debt and now the lender will...

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Stretching account payables is the postponing of payments beyond the credit period. “By delaying bill payments as long as possible without damaging the firm’s credit, companies gets interest-free loans from suppliers” (Gitman, p 550). Advantages can be convenience and availability of trade credit and a greater flexibility as a means of financing. In reading different articles about stretching accounts payable, I see that this is done more with short term credits than long term credits. With short term credits you seem to have more flexibility. There are disadvantages when you stretch account payables. A vendor might consider you being a slow payer and eventually inquire that the company make payments on time. You can get late payment penalties or interest and deterioration in credit rating. A company can borrow too heavily on its short-term credits, that it is
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Unformatted text preview: unable to repay the debt and now the lender will not extend the credit to repay the loan and company is force to file bankruptcy. There are advantages of early payment which often work out to be more profitable than any other way you can invest your dollars. “Well then, you should have put my money on deposit with the bankers, so that when I returned I would have received it back with interest” (NIV, Matthew 25:27). You walk a thin line when paying bills late. You should never do anything to jeopardize the relationship between you and the vendors. References Gitman, Lawrence J. (2009). Principles of managerial finance brief. Pearson Prentice Hall, Boston, MA. Short-Term Financing. Chapter 11. Retrieved 3 December 2009 from: htpp://wps.pearson.co.uk/wps/media/objects/1669/1710030/0273685988_ch11.ppt...
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This note was uploaded on 04/03/2011 for the course ECON 490 taught by Professor Professorjohns during the Spring '09 term at Liberty.

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