Inventory Control and Trade Credit

Abstract

Using generally accepted principles of financial analysis, this paper argues that, if trade credit has the character of a renewable source of capital, the usual assumptions as to the incidence and the value of the inventory investment opportunity cost made by traditional inventory theory are correct, contrary to several recent papers on this subject. It then shows that if trade credit surplus is taken into account, the optimal replenishment quantities decrease, rather than increase, as argued in some papers.

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