Delay of payments vs. price discounts for extraordinary purchases: The buyer’s perspective

This paper considers a buyer’s decision whether to increase the size of the usual order in exchange for either a discount on the purchase price or a credit period within which no payment is required. For each payment reduction mode, the model computes the maximum level of stock beneficial to the buyer as well as the level of extra stock which maximizes the difference between buying and refusing in order the additional stock. Moreover, it will be shown that there exists a trade-off between the level of discount and the length of the credit period which renders the buyer indifferent to the scheme of payment reduction offered.