Generally, the longer the normal inventory holding period of a customer the longer the credit period. One effect of extending the credit period to match the customer's merchandise holding period is to increase the deferrables period which actually serves to shorten the customer's cash conversion cycle.

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By extending the credit period to match the customer's merchandise holding period, the deferrables period is increased. This means that the time period between when the inventory is purchased and when the payment is due is longer, which shortens the customer's cash conversion cycle.

Generally, the Longer the Normal Inventory Holding Period of a Customer