![]() This delay will allow the company to use available funds for investment and have an additional 30 days to make the payment to the supplier. The manufacturing company could negotiate with the supplier to extend the payment term to 60 days instead. The company has $20 million of cash available on hand and after 30 days has an investment opportunity of $20 million, which will exhaust all the cash that the company has readily available. The computer manufacturer has to make a payment of $4 million within 30 days from the purchase date to the supplier. With efficient cash flow management comes efficient cash allocation that allows companies to cover operating expenses, utilise investment opportunities, and maintain adequate cash reserves.įor instance, a computer manufacturing company that purchases its core parts from a certain supplier has a policy of providing goods on a 30 day payment term basis.
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