CSLB Contractor's Law & Business Practice Exam

A supplier who provides a contractor with materials or equipment without requiring security has extended what type of credit?

1. Open account

2. Installment

3. Secured

4. Conditional

The correct answer is: Open account

The correct answer is that a supplier who provides a contractor with materials or equipment without requiring security has extended an open account credit. This type of credit allows the contractor to receive goods and services with an agreement to pay later, typically under agreed terms. It is commonly used in construction and trade, enabling contractors to have the necessary materials on hand to complete their projects without the immediate requirement for payment. An open account is characterized by its flexibility, where payments can be made periodically, and there is usually no need for collateral or security interests. This is advantageous for contractors who may need to manage cash flow effectively while ensuring that they can meet project timelines. The other forms of credit mentioned, such as installment loans or secured credit, involve different arrangements. Installment credit would require payments to be made in fixed amounts over time, often with some form of security or collateral. Secured credit typically requires the borrower to provide collateral, while conditional credit may involve terms that depend on certain conditions being met before the payment obligation arises. Thus, those options do not reflect the characteristics of an open account credit arrangement.