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) If the buyer defaults, the supplier may be able to seize the inventory as collateral.
C) The supplier may have more information about the credit quality of the customer than a bank.
D) Providing financing at below-market rates is an indirect way to lower prices for only certain customers.

Question

Quizplus · Accepted Answer

Trade credit does not reduce a firm's collection float; instead, it is a form of short-term financing provided by suppliers, allowing buyers to purchase goods or services on account without immediate cash payment. 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 more directly related to payment processing times rather than the terms of trade credit.

Which of the Following Is NOT an Advantage of Trade