ACME computers currently has a retailer ABC Company who has net 30-day repayment terms (i.e. they pay their bills in 30 days). ABC is requesting a change to their repayment terms and ACME has agreed to consider.
ABC has requested to choose one option - (either 2% discount net 35 days or 60 day payment terms).
Which is the best option for ACME and why?
Things to consider:
The retailer purchases:
LAPTOPS $1.5M average per month over a 12-month period
DESKTOPS $500k average per month over a 12-month period
Without doing ANY data extraction, lay out a spreadsheet that shows the impacts of each of the proposed changes relative to what happens today. Assume an annual interest rate of 1%. What would your recommendation be and why? What things did you consider in making this recommendation?