Amazon.com immediately receives cash from its customers when sales occur on its

Question

Amazon.com immediately receives cash from its customers when sales occur on its website. When the company stretched the number of days taken to pay its suppliers from 63 to 72 days, this created a huge jump in the company's accounts payable balance, which helped increase free cash flow from $346 million to $1.36 billion. In one quarter, Amazon's sales increased 28%, but its accounts payable nearly doubled, causing a 116% increase in free cash flow. Discuss the following questions:

1) Do you think managers should increase cash flows by delaying payments to suppliers?

2) Would it promote a cooperative relationship with suppliers?

Explanation / Answer

Being a finance manager, the decision to increase the cash flows is always wise. Here the delay in payment to supplier in increase huge amount of cash flows , so it should be employed. It would not promote a cooperative relationship with suppliers and may result in negative effect on relation with suppliers.

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