Over time, how a company uses its accounts payable can greatly impact its cash flow. Accounts payable are considered a source of cash, meaning that by taking advantage of these arrangements with suppliers, a company can actually increase its cash flow and cash on hand.
At first, the concept can seem a bit abstract, so let's consider a quick hypothetical.
Let's say a company has accounts payable of $100,000 at year-end and cash on hand of $50,000. Over the following year, the company's suppliers allow it to double the time it waits before paying its bill from one month to two months.
This change doubles the company's accounts payable, assuming it takes full advantage of the arrangement. When the new arrangement takes effect, the purchasing company won't have to pay the bill that month because it will have an extra month available to wait. A simple way to think about this dynamic is to view the extra time as a "free month" when the purchaser won't have to make any payments to its suppliers.