Optimal Cycle Time and Payment Option for Retailer
In business transaction, it is evident that offering a credit period to the end customers plays an effective role in boosting the demand. In addition, the high risk of default is associated with lengthier credit period. It is also a natural phenomenon that compared to advance payment, the offer of credit period accelerates the sales. Therefore, it is marked that lengthier credit period yields more sales with the risk of defaulters. On the other side, no default risk is associated with the advance payment. We link the above-mentioned scenario in this paper and formulate the mathematical model; the objective is to maximize retailer’s profit with payment period (amongst advance period, cash on delivery and credit period) and cycle time as a decision variable. To validate the model numerical examples are presented and sensitivity analysis of parameters is done to examine their effect on retailer’s decision.
KeywordsAdvance payment Cash on delivery Permissible delay in payment
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