Question

Each of the following represents an effective cash management practice except:

• A. payments to suppliers should be expedited in order to simplify record keeping
• B. payments to suppliers should be delayed as long as possible (without compromising the business relationship) in order to maximize the interest earning potential on those funds
• C. short term investments should be purchased with excess cash in order to maximize the interest earning potential
• D. receivable collections should be expedited in order to minimize the costs associated with accounting for customers and servicing delinquent accounts.

Answer 1

Correct Option A
Reason: If payments to suppliers is expedited it will create excess interest cost on the amount need to pay to account payable for the period early paid.
Why other option are incorrect:
Option B	Delaying payment to supplier will decrease interest cost on working capital which represents an effective cash management practice
Option C	short term investments purchased with excess cash allow us to earn some interest on idle cash which represents an effective cash management practice
Option D	receivable collections should be expedited in order to minimize the costs associated with accounting for customers and servicing delinquent accounts. It will decrease our cost of working capital.