A firm is said to be extending net trade credit when its accounts receivable are less than its accounts payable.

Question

Quizplus · Accepted Answer

Net trade credit is the difference between accounts receivable and accounts payable, with a positive net trade credit meaning that the firm is extending credit to its customers, and a negative net trade credit meaning that the firm is relying on credit from its suppliers. Therefore, if accounts payable are less than accounts receivable, the firm is actually being extended trade credit by its suppliers, rather than extending it to its customers.

A Firm Is Said to Be Extending Net Trade Credit