Which of the following will tend to increase the credit period? I. increase in the buyer's inventory period
II) decrease in the buyer's inventory period
III) increase in the buyer's operating cycle
IV) decrease in the buyer's operating cycle

Question

Quizplus · Accepted Answer

An increase in the buyer's inventory period would mean that the buyer is holding inventory for a longer period of time, which would tie up their cash flow. This would lead to the buyer requesting a longer credit period to pay their suppliers. Similarly, an increase in the buyer's operating cycle (i.e., the time it takes for the buyer to convert inventory into sales and then into cash) would also tie up their cash flow and lead to a longer credit period being requested. Therefore, statements I and III only are correct. Statements II and IV are incorrect since a decrease in the buyer's inventory period and operating cycle would lead to the buyer having quicker access to cash and may result in them requesting a shorter credit period.

Which of the Following Will Tend to Increase the Credit