Not taking cash discounts is costly, and as a result, firms that do not take them are usually those that are performing poorly and have inadequate cash balances.

Question

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Not taking cash discounts can lead to higher costs because firms miss out on the opportunity to reduce their purchase prices. This behavior is often indicative of firms that are performing poorly or have inadequate cash balances, as they may not have the liquidity to take advantage of these discounts.

Not Taking Cash Discounts Is Costly, and as a Result