Optimal payment time under permissible delay in payment for products with deterioration

A permissible credit period is usually allowed to a retailer to pay back th e dues without paying any interest to the supplier. The retailer can pay th e supplier either at the end of the credit period or later incurring intere st charges on the unpaid balance for the overdue period. The retailer is ex pected to settle the account at a time before the end of the inventory cycl e time because the payable interest rate is generally higher than the earne d interest rate. A model for optimal cycle and payment times is developed h ere for a retailer in a deteriorating-item inventory situation where a supp lier allows a specified credit period to the retailer for payment without p enalty. Under these conditions, this supplier-and-retailer system is modell ed as a cost minimization problem to determine the optimal payment time und er various system parameters, An iterative search procedure is applied to s olve the problem, and the overall findings indicate that the retailer alway s has an option to pay after the permissible credit period depending on uni t purchase and selling price, the deterioration rate of the products and th e interest rate.