The longer its customers normally hold inventory, the longer the credit period supplier firms normally offer.Still, suppliers have some flexibility in the credit terms they offer.If a supplier lengthens the credit period offered, this will shorten the customer's cash conversion cycle but lengthen the supplier firm's own CCC.

Question

Quizplus · Accepted Answer

This statement is true as it aligns with the concept of cash conversion cycle, which is the time it takes for a company to convert its investments in inventory and other resources into cash flow from sales. Suppliers offer longer credit periods to customers who hold inventory for longer periods because it speeds up the customer's cash conversion cycle. However, it also lengthens the supplier firm's own cash conversion cycle because they receive payment later.

The Longer Its Customers Normally Hold Inventory, the Longer the Credit