Question

Some companies use complicated processes intended to delay processing of payments and to delay the payment as much as possible. Other companies pay promptly, even early, to ensure there are obligations are satisfied. Many of the companies that pay on time or early use bank products to schedule the payment date. You probably use various bank products to speed payments (debit cards, credit cards, pre-scheduled payments). What is the benefit of prompt payment, especially using bank products? What are the risks of paying early?

Answer 1

There are many benefits which are associated with payment of debt earlier-

A. It helps in formation of a better reputation of the business when it comes to generating new debt financing.

B.it will also be leading to improvement in creditworthiness of the individual or the organisation.

C.it can also be leading to discount in the payment schedule due to repayment of the debt earlier.

Disadvantage associated with early payments are as follows-

A. The organisation is trying to ignore the time value of money benefits because it would have been helpful in late payments to the creditors because it would have given more liquidity to the business.

B. It would have been helpful in betterment of cash conversion cycle as days payable outstanding would have increased.

C. It would also had given the company better flexibility and liquidity.