Optimal Purchase Quantity and Credit Period for Deteriorating Items with Credit- Dependent Trended Demand

Abstract

In order to boost demand and draw in additional purchasers, the seller extends the credit time for account settlement. However, the seller is at danger of defaults due to this financing offer.  In this study, the seller is the decision-maker, with demand increasing over time and dependent on the permissible credit period.  Products in the inventory deteriorate at a constant rate.  Default risk in incurring in sales revenue is considered in the profit maximization objective.  The study discusses the necessary condition for determining the optimal credit period and purchase quantity and outlines the procedure to obtain the optimal solution.  A numerical example is provided to illustrate the results, and a sensitivity analysis is performed to derive managerial insights.