Day: July 4, 2022

In 2021, Electromac Group plc (EMS) increased the time it took to pay 1,000 of its larger suppliers from 60 days to 90 days.

This is most likely to result in an ……?

Select ONE answer:

1. improvement in cash flow for EMS
2. improvement in EMS’s brand image
3. increase in the number of suppliers for EMS
4. increase in EMS’s overdraft facility

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 1

1. Correct – Cash-flow is the money that is moving in and out of a business. Paying suppliers 30 days later will allow EMS to keep cash longer in its own bank account as suppliers will have to wait longer to be paid. This will result in an improvement in cash flow as EMS will have longer to sell the goods it makes before having to pay their suppliers for them.
2. Not correct – this may lead to EMS receiving a poor brand image as EMS is seen as being unethical by taking longer to pay suppliers OR brand image only applies to customers who may not know or care about the change in supplier terms.
3. Not correct – this may lead to a decrease in the number of suppliers who want to trade with EMS as it will impact on their cash flow if they are paid 30 days later.
4. Not correct – EMS should see a decrease in the amount of overdraft they will need if they are taking longer to pay its suppliers.

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