What is the main benefit of trade credit for an enterprise?

• A. Immediate increase in revenue
• B. Ability to manage cash flow by delaying payment
• C. Lower cost of materials
• D. Improved customer relations

Answer: (B)

The main benefit of trade credit for an enterprise is the ability to manage cash flow by delaying payment. Trade credit allows a business to purchase goods or services and defer payment for a specified period. This flexibility can be crucial for a company, especially small to medium-sized enterprises, as it enables them to maintain sufficient cash flow to cover operational expenses, invest in growth opportunities, or handle unexpected costs. By managing cash flow effectively, businesses can ensure they have enough liquidity to operate smoothly while also arranging their financial obligations in a manner that does not jeopardize their day-to-day operations.

In contrast, immediate revenue increases, lower costs, or improved customer relations are secondary outcomes that could result from a range of business activities or strategies, but they are not direct advantages of trade credit itself. The core function of trade credit revolves around financial management and maintaining operational stability during periods of cash flow unpredictability.