Final answer:
The transaction where a business provides services and the customer promises to pay later is known as credit sales. Credit sales involve the business extending a short-term loan to the customer, expecting future payment based on trust and credibility. Credit cards operate similarly by transferring the payment responsibility to the card issuer in the short term.
Step-by-step explanation:
When a business provides services to a customer, and the customer promises to pay later, this transaction is referred to as credit sales. Credit sales occur when a seller allows a buyer to take possession of goods or receive services in advance of payment. In essence, the seller is extending a short-term loan to the buyer, under the assumption that the buyer will pay for the services or goods at a later date.
Credit transactions are based on trust and the credible promise by the customer to pay in the future. This type of arrangement is vital for businesses, particularly those that sell goods through channels like mail-order catalogs or online platforms, where customers can't physically inspect the products before purchasing. Offering credit can also be beneficial for firms that have proven records of revenue and profit, as it may give them leverage to secure more formal borrowing arrangements through banks or bonds.
However, it's important to note that when buyers use credit cards, the transaction is slightly different. The use of a credit card immediately transfers money from the credit card company's account to the seller, while the buyer owes that amount to the credit card company, essentially being a short-term loan from the credit card issuer to the buyer.