After years of paying its suppliers on the due date and not before, as of...
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After years of paying its suppliers on the due date and not before, as of January 1, 20Y5, Success Company begins to take advantage of the early- payment discounts offered by all of its trade suppliers. What overall effect will the implementation of this decision have on Success Company's 20YS cash flow? Paying its accounts payable earlier will lower Success Company's cash flow. The amount of I depend on how much sooner payment must be made to qualify for the discount. reduction wil Regardl less of when Success used to pay its payables, it will now pay less which will increase its cash flow Paying its ac counts payable earlier will reduce the source of cash they provide. The early-payment discount will reduce the amount of cash used for purchasing inventory. The net effect of the combination of the two will determine whether the policy change improved or impaired the company's cash flow. The earlier Success pays its payables, the sooner it will have to borrow money (or reduce deposits) to fund the payment - thus incurring an interest cost which will effectively negate the early- payment discount. The net result is a wash. Overall, there will be no change to Success Company's cash flow
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