Which of the following is the reason why a seller allows a customer cash discount?
- agreement to become a regular customer
- introducing a new customer to the seller
-
settlement of account within a stated period
- placing a larger order
The correct answer is: C
Explanation
Small cash discounts benefit the seller because they increase the likelihood that a buyer will pay quickly, therefore providing the seller with cash in a shorter period of time, as it is better to receive e.g. 95% of an invoice with a few days than wait 30 or more days to receive the full amount.