4. Evaluating Accounts Receivable, Inventory and Accounts Payable Management
f. evaluate a company's management of accounts receivable, inventory, and accounts payable over time and compared to peer companies;
What is the juggling act involved with managing inventory?
Excessive stocks can place a heavy burden on the cash resources of a business. Insufficient stocks can result in lost sales, delays for customers, etc.
What are the two countering forces to consider when managing accounts payable?
- Paying too early is costly unless the company can take advantage of discounts.
- Postponing payment beyond the end of the net (credit) period is known as "stretching accounts payable" or "leaning on the trade."