Why Extending Payables Is A Really Bad idea

Any company considering an extension in their payables will need to take three basic steps to less the negative impact. The first of these is, of course, to communicate the extension. Explain to vendors why the extension is being made, its anticipated duration, and any efforts the company may take to reduce the impact on its vendors. The second is to review the strategy at least monthly to insure that it does not continue beyond the necessary period. The third is to appropriately note the situation in financial statements, particularly cash flow statements, to reduce the possibility of misleading or fraudulent financial statements that will affect the company and its accountants.

At best, extending payables should be an emergency practice used to weather a temporary fiscal crisis, with the full knowledge of all those involved. At worst, it is a subtle form of investor and vendor fraud that could have long-term negative effects on both the company and its marketplace.