Assume that you are a supplier to Tesco and have a payment term that allows Tesco to pay you in 60 days after the date of the invoice. This delay in payment is creating cash issues for you as they are your primary buyers.

However, Tesco suggests that if you give them a 3% discount, they will make immediate payment once the invoice is accepted. At the same time, your banker has suggested that they will lend you at 5% per annum to fund your working capital needs. Should you accept the offer from Tesco or accept your bank’s line of credit?