What risk does a supplier take when offering a prompt payment discount?

A supplier offering a prompt payment discount risks that the customer may not pay on time. This risk arises because the supplier is incentivizing the customer to pay earlier than they normally would, which could create a situation where the customer feels less urgency to pay promptly. If the customer chooses to take advantage of the discount, it could lead to cash flow issues for the supplier if payments are delayed.

In the context of business transactions, timely payment is crucial for maintaining a healthy cash flow. If customers do not adhere to the payment terms, the supplier might experience difficulties in managing day-to-day operations, such as meeting their own financial obligations, paying suppliers, or investing in new inventory. This aspect of risk is critical for businesses to consider when implementing payment discounts.

On the other hand, while increased demand and inventory levels are factors to consider when offering discounts, they don’t directly relate to the primary risk of delayed payments. Similarly, customer requests for higher discounts might influence supplier policies or pricing strategies but don't specifically address the immediate risk tied to the timing of payments.