George's Car Repair Shop buys parts from a local parts distributor. The distributor delivers the parts promptly under terms stated on the invoice that say: 3/15 net 30. George has always paid the bill in just 30 days and has never really worried about these invoice terms. What would you tell George to advise him on this matter?
A) George should not react to these payment terms because they are a tactic used by many distributors to get customers to pay early, with little or no benefit to George.
B) These terms mean that the payment is due in 30 days, but that as long as he is not more than 15 days late, he can avoid the 3 percent late penalty. Thus, George could actually delay payment until the 45th day without incurring a penalty.
C) He is smart to wait until the 30th day before making payment because this gives him the use of cash for the maximum possible amount of time.
D) If possible, it is smart to pay the bill within 15 days after receipt because then he will receive a 3 percent discount. If he does a lot of business with this firm, this will result in a sizeable savings for George by year's end.

Question

Quizplus · Accepted Answer

Option D suggests that George should take advantage of the offered 3% discount by paying within 15 days after receipt. This will result in a sizeable savings for George if he does a lot of business with the distributor by year's end. Therefore, option D is the best choice.

George's Car Repair Shop Buys Parts from a Local Parts