Delay of Payments for Extraordinary Purchases

Abstract

This paper considers the problem of a vendor attempting to dispose of unanticipated inventory levels through an offer to a prospective buyer of a credit-period within which no payment is required. For each party, a decision rule is developed in the form of a feasibility range beyond which the offer is not acceptable. Then, the interaction between the decision rules associated with each party is analysed. This includes a bargaining range of the different combinations of credit-period and extra-stock acceptable to both parties. In addition, a profit-sharing ratio is computed as a measure of the competitive advantage or disadvantage that the respective cost-profit structures provide to each side.