Economic order quantity and optimal payment time under supplier credit

In today's business transactions, the buyer is allowed a permissible period to pay back the cost of products bought without paying any interest. The buyer can either pay the supplier at the end of the permissible period or incur interest charges on the unpaid balance after this permissible period. This paper sets up a mathematical model to determine an optimal payment period and inventory length of the buyer which minimize the total cost of the inventory system. Furthermore, we find two theorems to characterize the optimal solution. Finally, two numerical examples are discussed to illustrate these theorems.