Credit grace periods for one-time-only sales

Periods of sluggish demand and/or poor sales forecasts often leadsto build-ups of unwanted inventories. When this happens, funds are tied up unnecessarily in unproductive endeavours and expected sales revenues are not realized. To counter such occurrences, vendors often resort to payment reduction schemes desigend to encourage sales. The most common is a temporary purchase price reduction until inventories reach more acceptable levels. A lesser known but also quite popular strategy is to give the buyer a grace period within which the buyer is not required to pay for the merchandise already purchased. The evaluation of such strategy, from the buyer’s perspective, is the purpose of this paper.