Which action reduces transaction risk in terms of payment terms?

• A. Shortening term.
• B. Lengthening term.
• C. Increasing upfront financing.
• D. Expanding credit terms.

Answer: (A)

Shortening payment terms reduces the time window in which a buyer might fail to pay, so the seller turns receivables into cash sooner and lowers exposure to credit risk. With faster collection, there’s less chance that a sale will become bad debt or be delayed, which directly lowers transaction risk. Conversely, longer terms extend the period of possible nonpayment, increasing the likelihood that a sale won’t be paid on time. Financing or expanding credit terms don’t decrease this risk—they either delay payment further or increase the amount of credit the seller is extending, which can raise exposure rather than reduce it.