ACCA Financial Management (F9) Certification Practice Exam

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Prepare for the ACCA Financial Management (F9) Certification Exam with engaging quizzes and interactive content. Dive deep into financial management concepts and boost your exam confidence with questions that come with detailed explanations.

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What does a longer accounts receivable payment period imply about a company?

The company collects payments quickly
The company may have cash flow issues
The company is offering better payment terms
The company has high customer loyalty

The correct answer is: The company may have cash flow issues

A longer accounts receivable payment period generally implies that the company may have cash flow issues. When a business extends its payment terms or finds that customers are taking longer to pay, it may indicate that cash is not flowing into the business as quickly as needed. This can lead to difficulties in meeting short-term obligations, such as paying suppliers or covering operating expenses. Moreover, it can indicate that customers are delaying payments, potentially due to their own financial difficulties, which could further strain the company's cash position. Such a situation calls for careful monitoring and management of cash flows to ensure that the business remains solvent. While offering better payment terms might be a strategy a company uses, if not managed correctly, it could lead to negative cash flow implications. High customer loyalty typically reflects timely payments, which would not contribute to a prolonged accounts receivable period.