As the CFO of Billybob's Auto Recycling, you plan to implement a system whereby customers who pay their bills on time will receive a 10% rebate on their purchases. Those who pay earlier than required will receive a 15% rebate. Explain the impact of this proposal on the firm.

The obvious results of this policy change include an increase in expected sales (due to the lower effective purchase price for customers that pay early) and a reduction in gross profit associated with offering the large discounts. Less obvious are such effects as the potential reduction in the firm's average receivables balance (and the cost of carrying them), and the potential for strategic price-cutting (as well as other actions) by competitor firms (assuming the product in question can be treated as a commodity item).