ACCA Financial Management (F9) Certification Practice Exam

What is the accounts payable payment period?

1. The time taken for customers to pay their invoices

2. The length of time it takes for suppliers to be paid

3. The period it takes to convert inventory into cash

4. The time before a company has to pay its debts

The correct answer is: The length of time it takes for suppliers to be paid

The accounts payable payment period refers specifically to the length of time it takes for a company to pay its suppliers after receiving goods or services. This metric is crucial for understanding a company’s cash flow management, as it indicates how effectively a business is managing its obligations to creditors. A longer payment period can suggest that a company is taking full advantage of its credit terms, potentially preserving cash for other uses, while a shorter period may imply a more aggressive policy in settling accounts. In this context, the measurement reflects the duration from when the company receives the invoice from its suppliers to the point when the payment is made. Businesses strive to optimize this period; however, it must be balanced against maintaining good relationships with suppliers and ensuring favorable credit terms. By managing the accounts payable payment period effectively, a company can improve liquidity and operational efficiency. Understanding this concept is essential as it directly impacts working capital management and overall financial health, allowing companies to make informed decisions regarding their financing and cash management strategies.