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Credit terms and sales.

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Optical Supply Company offers credit terms of 2/10, net 60. If Optical Supply is considering a change in its credit terms to one of those indicated, explain whether the change should increase or decrease sales. (a) 2/10, net 30, (b) net 60, (c) 3/15, net 60, (d) 2/10, net 30, 30 extra.

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This solution explains the effect of changes in a firm's credit terms on sales.

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(a) 2/10, net 30: decrease
(b) net 60: decrease
(c) 3/15, net 60: increase
(d) 2/10, net 30, 30 extra: increase.

I will use an example to illustrate my reasoning.

If the total accounts receivable is $1,000. If Optical Supply Company offers credit terms of 2/10, net 60 that means that customers who will pay in 10 days after the purchase will get a discount of 2% on their total payment, where they only pay $1,000 * 0.98 = $980. If not they will ...

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