Certified Treasury Professional Practice Exam 2025 – All-in-One Guide to Exam Success!

The most direct influence on a company's liquidity comes from its credit terms with suppliers. Liquidity refers to a company's ability to meet short-term obligations and convert assets into cash rapidly. When a company negotiates favorable credit terms with suppliers, it can either lengthen its payables period or obtain discounts for early payments, both of which can significantly improve cash flow.

Having extended credit terms allows a company to retain cash longer, thereby enhancing liquidity. This means the company can keep cash on hand longer before having to pay its suppliers, giving it more flexibility to handle immediate financial needs. On the other hand, if a company has strict credit terms and is required to pay suppliers quickly, it could deplete its cash reserves faster, negatively affecting liquidity.

While other factors like capital structure, operational efficiency, and revenue growth all contribute to a company's overall financial health, they do not directly impact liquidity in the same immediate way that credit terms with suppliers do. Capital structure relates more to long-term financing, operational efficiency pertains to how well the company uses its resources, and revenue growth rate focuses on long-term profitability, but none of these factors influence day-to-day cash availability as directly as credit terms do.