Cash flow management network models with quantity discounting

Cash flow management concerns the financial control and planning of a firm’s net cash inflows and outflows. This paper develops a network model to represent cash flow problems that involve a decrease in marginal costs (or an increase in marginal revenues) as the volume of cash increases. This type of problem, referred to as quantity-based discounting, is converted to a minimum concave cost network flow model. By making this conversion, it is possible to solve efficiently the quantity-based discounting problem using established algorithms. A short-term money market investment problem is used to illustrate the mathematical models developed in this paper.