Final answer:
The correct option is 4. Open-account purchasing is synonymous with trade credit, which is the credit extended by suppliers to their customers allowing deferred payment for goods or services, without requiring collateral.
Step-by-step explanation:
Understanding Open-Account Purchasing
Within the context of financing and credit, open-account purchasing is typically associated with trade credit. Trade credit refers to the credit extended by a supplier to their customer, allowing the customer to buy goods or services and pay for them at a later date. This form of credit does not typically require collateral and is based on trust between the supplier and the customer. It’s a common form of short-term financing in business transactions.
Trade credit is often chosen for its convenience and ability to improve cash flow for the buyer. For instance, if a company needs to purchase inventory but lacks immediate funds, trade credit allows it to proceed with the purchase, thereby not missing out on sales opportunities.
Answering the student's question directly, the option often called open-account purchasing is trade credit. This is different from unsecured loans, which are extended by financial institutions without collateral, and collateralized loans that are secured by physical assets. Compensating balances are minimum balance requirements set by banks for some accounts, and factoring involves selling accounts receivable at a discount for immediate cash.