Optimal payment time for a retailer under permitted delay of payment by the wholesaler

The retailer (buyer) is usually allowed a permissible credit period to pay back the dues without paying any interest to the wholesaler (supplier). In this problem the retailer can pay the wholesaler either at the end of credit period or later incurring interest charges on the unpaid balance for the overdue period. This research develops a retailer's model for optimal cycle and payment times for a retailer in a deteriorating-item inventory situation where a wholesaler allows a specified credit period to the retailer for payment without penalty. Under these conditions, this wholesaler-and-retailer system is modeled as a cost minimization problem to determine the optimal payment time under various system parameters. The model is solved through an iterative search procedure and the overall findings indicate that the retailer has always an option to pay after the permissible credit period depending on interest rates, unit purchase and selling price, and the deterioration rate of the products.