This study tries to promote the concept of Huang [Applied Mathematical Modelling 30 (2006) 418-436] and to investigate the retailer’s inventory policy under two levels of trade credit, limited storage capacity and transportation cost. In this model, a rented warehouse (RW) is used to store the excess units over the fixed capacity W of the own warehouse (OW) and the holding cost in RW is greater than that in OW, and it would generate the transportation cost from the process that goods shipped from OW to RW. The study also adopts Teng’s viewpoint (2002) that the retailer’s unit selling price is greater than the unit purchasing price. Then we make use of derivative approach to develop three theorems to find out the optimal replenishment cycle time. Finally, the result shows that when the retailer’s own warehouse storage capacity W is small, the optimal cycle time is decreasing as the RW unit stock-holding cost k, the unit selling price p or the unit transportation cost s is increasing. And some numerical examples are given to illustrate these theorems.