A Firm Tries to Extend Its Disbursement Float in Order

question 68

Multiple Choice

A firm tries to extend its disbursement float in order to reduce its working capital needs. Which of the following is a risk that may be associated with this strategy, if it is taken too far?

• A) may attract a late fee
• B) may be required to pay before delivery for future supplies
• C) may jeopardize the entire relationship with the supplier
• D) all of the above

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Definitions:

Default Risk

The possibility that a borrower will be unable to make the required payments on their debt obligations.

Days Payable Outstanding

A financial ratio that measures the average number of days a company takes to pay its suppliers; an indicator of how efficiently a company manages its payables.

Cash Receipts

The collection of money, including coins, currency, checks, and electronic transfers, received by a business or organization.

Default Risk

The possibility that a debtor will fail to fulfill their financial liabilities as agreed upon.