The Optimal Order and Payment Policies with Discount Cash Flows Analysis under Two Levels of Trade Credit Policy

Abstract

This study investigated an inventory problem in which the supplier simultaneously offers the retailer either a permissible delay in payments or a cash discount under two levels of trade credit policy and the retailer in turn provides its customer a permissible delay period. We used an alternate approach-discount cash flow (DCF) analysis to establish an inventory problem in which the supplier provides the retailer either a permissible delay or a cash discount under two levels of trade credit policy. We then study the necessary and sufficient conditions for finding the optimal solution. Furthermore, we establish several theoretical results to obtain the solution that provides the largest present value of all future cash flows. Finally, a numerical example is given to illustrate the results and obtain some managerial insights.