What is the term for credit one business grants to another business for the purchase of goods or services?

• A. Trade Credit
• B. Equity Capital
• C. Debt Capital
• D. Pro forma

Answer: (A)

Trade credit is when a supplier lets a business purchase goods or services now and pay later. It’s a form of short-term financing provided by vendors to help manage cash flow without immediately using cash or seeking external funds. This differs from equity capital, which involves selling ownership in the business, and from debt capital, which comes from lenders via loans or bonds with interest. Pro forma refers to projected financial statements, not a financing arrangement. Trade credit is common in business-to-business relationships and often has terms like net 30 or net 60, sometimes with early-pay discounts, making it a flexible and widely used way to finance purchases.