The Cost of Trade Credit: A Net Present Value Perspective.

UNCG Author/Contributor (non-UNCG co-authors, if there are any, appear on document)
Daniel T. Winkler, Professor (Creator)
Institution
The University of North Carolina at Greensboro (UNCG )
Web Site: http://library.uncg.edu/

Abstract: Trade credit represents a substantial portion of short-term credit for most firms. A trade credit decision is usually limited to a comparison of the effective cost of trade credit with the annual cost of borrowing. If the cost of not taking the cash discount exceeds the firm’s borrowing cost, the decision is to take the cash discount. This article examines traditional trade credit analysis, and reveals its inconsistencies with shareholder wealth maximization. The cost of foregoing trade credit and the cost of changing suppliers offering different trade credit terms are modeled using a net present value (NPV) framework.

Additional Information

Publication
Journal of Business and Economic Studies, Vol. 3, no. 1, 1996, pp. 53-63
Language: English
Date: 1996
Keywords
Trade credit, Net present value (NPV) framework, Traditional trade credit analysis