A Lot – Size Model For Progressive Payment Scheme : Under Dcf – Approach
by
Ajay S. Gor
Department of Mathematics, Gujarat University, Ahmedabad, India
Coauthors: Hardik Soni, Nita H. Shah

The allowable credit period offered by the supplier to the retailer is advantageous in two folds : Firstly, it encourages retailer to buy more; and secondly, it attracts new customers. Here, an attempt is made to study the effect of inflation rate on present value of all future cash – out – flows when the supplier offers the progressive trade credit to the retailer. The concept of progressive trade credit is as follows : If the retailer pays the outstanding amount be M, the supplier does not charge any interest on the amount to be settled. If the retailer pays after M but before N (M > N) , he will have to pay interest charges on the un-paid balance at the rate Ic1. If the payment is settled after N, the retailer will be charged at the rate Ic2 (Ic2 > Ic1). The present value of all future cash – out – flows is derived in all the three scenarios. A simple to use algorithm is given to exhibit flow of computations. Numerical example is given to validate derivation of mathematical model.

Key Words : Finance, EOQ, Progressive payment scheme, DCF – approach.

Date received: October 25, 2004