Which of the following is NOT an advantage of trade credit versus a standard loan?
A)Trade credit reduces a firm's collection float.
B)The supplier may have more information about the credit quality of the customer than a bank.
C)Providing financing at below-market rates is an indirect way to lower prices for only certain customers.
D)If the buyer defaults, the supplier may be able to seize the inventory as collateral.

Question

Quizplus · Accepted Answer

Trade credit does not reduce a firm's collection float; instead, it affects the payment terms between the buyer and the supplier, potentially delaying the payment the buyer needs to make. Collection float refers to the time it takes for money to be transferred from a payer to the recipient and become available for use, which is not directly impacted by trade credit terms.

Which of the Following Is NOT an Advantage of Trade