Which statement best describes trade credit?

Trade credit is best described as a financing arrangement where a buyer is allowed to purchase goods or services and defer payment to a later date. This practice is common among businesses, as it allows them to manage their cash flow more efficiently. By using trade credit, businesses can obtain inventory or supplies without the immediate cash outlay, making it easier to maintain operations and even invest in growth opportunities without straining their short-term liquidity.

Trade credit is not a permanent financing source; rather, it is typically short-term and tied to the specific purchases made. Although it can play a role in overall financing strategies, it is distinct from methods used in investment banking. Furthermore, trade credit is accessible to businesses of all sizes, not just large corporations, making it a versatile financing tool for a wide variety of entities in different industries.