Types of Payment Lag
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If the lag between purchase date and the date at which payment is due is known as the terms lag and the lag between the due date and the date on which the buyer actually pays is termed the due lag, and the lag between the purchase and actual payment dates is the pay lag.
Then
Pay lag = terms lag + due lag
How would you expect the following events to affect each type of lag:
a. The company imposes a service charge on late payers.
b. A recession causes customers to be short of cash.
c. The company changes its terms from net 10 to net 20.
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This solution provides explanations for questions regarding pay lag.
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a. The company imposes a service charge on late payers.
This will reduce the due lag as the service charges will push the buyers to pay with the due date. This will reduce the due lag.
b. A recession causes customers to ...
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