What is a direct effect when suppliers change account terms on a business?

What is a direct effect when suppliers change account terms on a business?

• A. Brand recognition improves
• B. Government policy changes
• C. Customer demand increases
• D. Cash flow and working capital affected

Answer: (D)

Payment terms with suppliers determine when cash must leave the business. That direct timing change hits liquidity right away, so cash flow is affected. It also alters current liabilities (accounts payable), which changes working capital in the short term. If terms are extended, you can delay payment and keep cash longer, improving cash flow and the near-term working capital position; if terms are shortened, cash must go out sooner, tightening cash flow and liquidity.

Payment terms with suppliers determine when cash must leave the business. That direct timing change hits liquidity right away, so cash flow is affected. It also alters current liabilities (accounts payable), which changes working capital in the short term. If terms are extended, you can delay payment and keep cash longer, improving cash flow and the near-term working capital position; if terms are shortened, cash must go out sooner, tightening cash flow and liquidity.