City Research Online

Abstract

Trade credits have received considerable attention in recent years and have become one of the most important sources of short-term funding for many companies. The paper at hand studies the optimal ordering and payment policies of a buyer assuming that the supplier offers a progressive interest scheme. The contribution to the literature is twofold. First, the different financial conditions of the companies involved are taken into account by assuming that the credit interest rate of the buyer may, but not necessarily has to, exceed the interest rate charged by the supplier. In addition, the time-value of money is considered in this scenario which is relevant when trade credit terms are valid for a long period of time and payment flows need to be evaluated by their net present value to ensure long-term profitability. The models proposed enable decision makers to improve ordering and payment decisions and the results reveal that taking into account the temporal allocation of payments, the prevailing interest relation influences replenishment policies significantly.

Publication Type:	Article
Publisher Keywords:	Economic Order Quantity, Trade Credit, Progressive Credit Period, Discounted Cash Flow, Net Present Value, Inventory Management
Subjects:	H Social Sciences > HG Finance
Departments:	Bayes Business School > Management

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