Certified Supply Chain Professional (CSCP) Practice Exam

What is trade credit primarily characterized by?

1. Advance payment for goods

2. Immediate payment after delivery

3. Sales of goods/services with deferred payment

4. Cash transactions only

The correct answer is: Sales of goods/services with deferred payment

Trade credit is primarily characterized by the sales of goods or services with deferred payment. This means that a buyer can receive products from a seller and pay for them at a later date, which is a common practice in business-to-business transactions. Trade credit allows companies to maintain cash flow while managing their inventory or operational needs without immediate cash outlay. This deferred payment system is beneficial as it can enhance liquidity for the buyer and promote ongoing business relationships between the buyer and seller. Options involving advance payment for goods or immediate payment after delivery do not align with the essence of trade credit, which specifically involves an agreement allowing for a delay in payment. Cash transactions only reflect immediate, upfront payments, which again diverge from the fundamental characteristic of trade credit that emphasizes the postponement of payment.