Which action reduces transaction risk by adjusting payment terms?

• A. Shortening term.
• B. Lengthening term.
• C. Increasing upfront financing.
• D. Reducing guarantees.

Answer: (A)

Shortening the payment term reduces transaction risk by cutting the time window during which the buyer could default. When payment is due sooner, the seller receives cash back faster and is less exposed to the buyer’s credit problems over an extended period. Extending the term would increase that exposure, making nonpayment more likely. Shifting to upfront financing or reducing guarantees doesn’t shorten the buyer’s obligation period or directly lessen the risk of nonpayment; they either move the risk elsewhere or reduce protection, rather than reduce the seller’s credit exposure.