George’s Car Repair Shop buys parts from a local parts distributor. The distributor delivers the parts promptly under terms stated on the invoice: 3/15 net 30. George has always paid the bill within 30 days and has never really worried about these invoice terms. Which of the following statements is true of this scenario?

a. George should not react to these payment terms because they area tactic used by many distributors to get customers to pay early, with little or no benefitto George.
b. These terms mean that the payment is due in 30 days, but that as long as he is not more than 15 days late, he can avoid the 3% late penalty. Thus, George could actually delay payment until the 45th day without incurring a penalty.
c. He is smart to wait until the 30th day before making payment because this gives him the use of cash for the maximum possible amount of time.
d. If possible, it is smart to pay the bill within 15 days after receipt because then he will receive a 3% discount. If he does a lot of business with this firm, this will result in a sizeable savings for George by year’s end.

d. If possible, it is smart to pay the bill within 15 days after receipt because then he will receive a 3% discount. If he does a lot of business with this firm, this will result in a sizeable savings for George by year’s end.

Explanation:

In the given instance the supplier of parts to George uses invoice 3%/15 net 30. This means if payment for parts is made within 15 days George will get a discount of 3%, if not the total amount of the parts is to be repayed within 30 days.

The best option for George will be to reduce his repayment period from 30 days to 15 days or less.

This way he will get 3% discount on sales and if he does a lot of business with the spare parts dealer, he will save a large sum of money