Experiencing an average collection period

Reference no: EM131104012

XYZ Corporation is experiencing an average collection period of 120 days. The industry average is about 75 days. The firm has also experienced an increase in its business in the last 2 years and has been buying more inventory. The management wants to increase the amount of permanent inventory stock, and projects an increase in the accounts receivable balance.

The firm is considering two financing options: a 7-year loan at the rate of 8.5%; and a 90 note at prime plus 2%, which would help the firm with liquidity challenges.

The firm%u2019s average days payable outstanding is 45, and the industry average is 60. Determine possible methods to use payables as a short-term financing strategy. Recommend the most beneficial method and include your rationale.

Reference no: EM131104012

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