If a company's average payable period ratio is significantly lower than the credit terms vendors offer, it may be a sign that the company is not using its cash most effectively.

Question

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A significantly lower average payable period ratio than the credit terms offered by vendors may indicate that the company is paying its bills too quickly, which could suggest poor cash management practices. It may be using its cash less effectively than it could be if it extended payment terms and invested the funds elsewhere in the business.

If a Company's Average Payable Period Ratio Is Significantly Lower