Which of the following price adjustment strategies encourages prompt payment?

A cash discount is a price adjustment strategy offering a reduction in the invoice price to buyers who pay their bills within a specified period. This incentive is explicitly designed to accelerate a company's cash collections and reduce its accounts receivable balance. For example, credit terms such as "2/10, n/30" mean the buyer can take a 2% discount if they pay within 10 days; otherwise, the full amount is due in 30 days. This directly encourages prompt payment to realize the savings.

B. Quantity discounts: These are price reductions for purchasing in large volumes, incentivizing larger orders, not faster payment.

C. Functional discounts: Also known as trade discounts, these are offered to channel members for performing specific functions like selling or storing.

D. Seasonal discounts: These are price reductions for purchases made out of season, designed to smooth production and demand.

1. Kotler

P.

& Armstrong

G. (2021). Principles of Marketing (18th ed.). Pearson. In Chapter 10

"Pricing: Understanding and Capturing Customer Value

" the section on "Discount and Allowance Pricing" states

"A cash discount is a price reduction to buyers who pay their bills promptly." (p. 321).

2. Brealey

R. A.

Myers

S. C.

& Allen

F. (2020). Principles of Corporate Finance (13th ed.). McGraw-Hill Education. Chapter 30

"Credit and Inventory Management

" discusses the terms of sale

explaining that a cash discount is offered to induce customers to pay early. (Section 30.2

p. 799).

3. Ross

S. A.

Westerfield

R. W.

& Jordan

B. D. (2019). Fundamentals of Corporate Finance (12th ed.). McGraw-Hill Education. Chapter 18

"Short-Term Finance and Planning

" describes the terms of sale

noting that a cash discount is a "discount given to induce prompt payment." (p. 606).