Changes in the Prompt‐Payment Discount during Inflation

Abstract

The prompt‐payment discount offered by a company is an important determinant of its investment in accounts receivable. During inflation, this discount must be increased in order for the selling company to avoid having an increase in its average collection period, an increase in its investment in receivables, and decline in the wealth of its shareholders. This article presents the rationale for increasing the prompt‐payment discount during inflation and concludes with a table listing the necessary prompt‐payment discounts that will leave the real prompt‐payment discount unchanged and minimize the company's exposure to purchasing power losses.

Citation

Foster Roden, P. (1984), "Changes in the Prompt‐Payment Discount during Inflation", Managerial Finance, Vol. 10 No. 2, pp. 8-11. https://doi.org/10.1108/eb013536