The Trade Credit Decision: Evidence of Uk Firms

• Main Authors: CHENG, Nam Sang, Pike, Richard
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2003
• Subjects: Accounting
• Online Access: https://ink.library.smu.edu.sg/soa_research/625
• Institution: Singapore Management University

Trade credit finance and credit management are gradually gaining the research attention an area of such importance merits. One area, still far from resolved, is why trade credit is extended by non-financial firms to customers. This paper seeks to identify the generic forces behind the trade credit motives and to explore the empirical support for 20 propositions on credit motives derived from the literature and the implications of such motives to credit policies. The paper reports findings from a survey of senior finance officers involved in credit management in large UK companies. The study found strong empirical support for seven propositions linked to competitiveness, pricing, investment and financing, and weaker support for a number of other theoretically-derived motives for trade credit extension. Factor analysis suggested a more insightful approach to classifying trade credit motives, covering investment in customers, customer's operating and financial benefits, supplier's marketing/operational benefits and market pressure to conform.