The longer its customers normally hold inventory, the longer the credit period supplier firms normally offer.Still, suppliers have some flexibility in the credit terms they offer.If a supplier lengthens the credit period offered, this will shorten the customer's cash conversion cycle but lengthen the supplier firm's own CCC.

Question

Quizplus · Accepted Answer

This statement is true. The credit period offered by suppliers is influenced by the inventory holding period of their customers. However, suppliers can also adjust their credit terms based on their own cash conversion cycle considerations. If they offer longer credit periods, it may benefit their customers' cash conversion cycle but negatively impact the supplier firm's own cash conversion cycle.

The Longer Its Customers Normally Hold Inventory, the Longer the Credit