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Compare Quote with Payment Term.
its depend on the cash flow of the company for Eg - if you financially sufficient, better you go for A because when compare A with B, B is20% higher than A and the additional expense no need to be incurred and if that is a selling item in your company remember you have to compete in the market for a higher price.
on the other hand if you are not financially sufficient for your day today you better select B, because your net payment days3 times higher than A. if its a resale item your profit margin would be low because some supplier can sell at on a low price so you should survive in the market.
We need to compare both the PV's adding Profit or loss, a company usually generates from cash investments w.r.t payment days. The one with favourable values should be advisable.
However, depending upon the financial objective of a company, mitigating financial risks by keeping their supplier payments equals or higher to customer payouts is always favourable.
The evaluation should follow the procedures listed in the invitation for the quotation. The client should make it clear to the prospective tenderer for transparency and equal treatment purposes. If You need to consider the evaluation of payments terms for certain financial issues you should specify in the instructions ( before you get the quote) the weekly/monthly/yearly rate or points witch will be used in the evaluation in order to be able to evaluate. Then, among other evaluation criteria stated in the instructions, you should proceed with the evaluation. The final result may differ depending upon the rate which you usually give for the advantage of late payment per week/month/year.
Will accept Quote B in order to roll out amounts for more days
It depends on the cash roll over of the organization with respect to the project cost.
Should any discounts are offered on paying prior to30 days, making the quote more appealing at that point, quote A will be chosen.
however rolling a10004 for an extra60$ at a minimum charge is an option that most companies would find much more interesting.
The difference is the opportunity cost of money - either settle creditors fast and avail cash discount if the company has adequate Working Capital ( reap the benefits ) . Else compare the cost of borrowing vis a vis availing credit terms from suppliers with additional load on the cost .
It really depends on funding and earning of the company. Even it is less on Quotation A mostly company's now a days prefer Quotation B because of longer payment terms.
Depending on the cash position and funds cost of the organization, find the PV of both the Paymment Terms by discounting with the Funds Cost of Organization. The one that has a lower PV would mean lower net outflow hence advisable.
However, in real life scenarios, even if the PV is slightly higher but the cash flow coincides with the cash inflow of the project, an option wiht higher outflow may also be recommended to keep finance stress at minimum.
Hope this resolves
100 % we should go for Quote B; as its providing us additional60 days cash roll over of $1000 for our Firm at extra cost of $20/-.
