ABC Co. is considering giving a 2% cash discount to its customers who pay within 10 days. (The ﬁrm
currently offers no discount.) If it institutes this policy, it is likely that the buyers will be able to
reduce their cost of goods sold, and buyers who do not take the discount will be using an
expensive source of ﬁnancing.

Question

Quizplus · Accepted Answer

Offering a cash discount to customers who pay within 10 days can encourage them to pay sooner, reducing the amount of time that ABC Co. has to wait to receive payment. This can reduce the company's cost of financing its accounts receivable. Additionally, if customers do not take the discount and instead take longer to pay, they are essentially using ABC Co. as a source of financing, which can be expensive for the company. Therefore, instituting the cash discount policy is likely to benefit both buyers and ABC Co.

ABC Co Is Considering Giving a 2% Cash Discount to Its