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when receivable days have declined from 90 days to 60 days in a year, we could say that working capital is managed efficiently.
but instead if payable days have declined from 90 days to 60 days in a year, is it efficient or poor management?
i have this doubt, mainly bcoz if the company pays promptly supplier is pleased. in that respect it is good, but at the same time, it affects working capital. so i could not come with an answer.A decline in payable days is a sign of good management and shows that the companay doesn’t have liquidity issues.
No – a decline in payables days is not necessarily a sign of good management.
A company should normally take as much credit from payables as possible, provided that it does not cause the supplier to stop supplying.
However, in Vipin’s example, the fact that they currently take 90 days (i.e. 3 months) would suggest that maybe it is because they cannot afford to pay sooner. It very much depends on the type of business, but for suppliers to allow 3 months credit would be very unusual – there would certainly be a risk of the stopping supplying.
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