Accounts payable is often called interest-free financing. As such, explain why a company would choose to pay
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Accounts payable is often called “interest-free financing.” As such, explain why a company would choose to pay the amount owed on its purchases of inventory 50 days early. Base your answer on these facts:
• The annualized cost of forgoing an early payment discount is approximately 16 percent.
• The company’s cost of borrowing short-term on a bank line of credit is 9 percent.
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Days payable outstanding is an efficiency ratio that measures the average number of days a company takes to pay its suppliers. The video shows how to effectively calculate days Payable outstanding.
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