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 jeopardise the entire relationship with the supplier
C)may be required to pay before delivery for future supplies
D)all of the above

Question

Quizplus · Accepted Answer

If a firm tries to extend its disbursement float too far, it may attract late fees from suppliers as they may become frustrated with the delayed payments. Additionally, it may jeopardize the entire relationship with the supplier if they feel that they are not being paid in a timely manner. Finally, the supplier may request that the firm pays before delivery for future supplies, which could negatively impact the firm's cash flow and working capital needs in the long run. Therefore, all of the above options are associated risks of extending one's disbursement float too far.

A Firm Tries to Extend Its Disbursement Float in Order