The cost of trade credit varies directly with the size of the cash discount and inversely with the length of time between the end of the discount period and the final due date.

Question

Quizplus · Accepted Answer

This statement is correct. The cost of trade credit is affected by the size of the cash discount offered by the seller to the buyer for early payment. The larger the discount, the lower the cost of trade credit. However, the cost of trade credit also increases as the length of time between the end of the discount period and the final due date increases. This is because the seller has to wait longer for payment, which creates an opportunity cost of not having access to the cash sooner.

The Cost of Trade Credit Varies Directly with the Size