Trade Credit Management

Trade Credit Management
School of Management PGR Scholarships
Dr Salima Paul
Associate Professor (Reader) in Accounting and Finance
Trade credit – delay in firm-to-firm transactions between the provision of goods or services and
payment for them – constitutes a very complex and heterogeneous set of business lending practices.
Globally, the scale of trade credit is significant – in most developed countries it exceeds the shortterm bank credit by a factor of two. Some SMEs’ survival depends on whether they get trade credit
from their suppliers or not. Furthermore, the current global economic difficulties provide an
imperative for firms to improve the management of their trade credit as customers may have a
reduced capacity or even willingness to pay on time.
Late or non-payment can slow or fatally rupture firms’ cash-flows. So trade credit represents a
significant risk: in the UK, over 80% of business-to-business sales are on credit and receivables
constitute a major part of firms’ total assets. If cash is not collected on time, firms incur extra costs
(financing, chasing). In time of recessions default risk is even greater. Conversely, the strategic
management of firms' trade credit goes well beyond cash-flow control. Managed effectively, trade
credit can confer competitive advantage in terms of information asymmetric, customer relationships
and financing of working capital.
A research in this very topical area is well overdue and the chosen candidate may investigate how
trade credit can be used strategically to increase firms’ value. Trade credit management can be an
important factor in corporate strategy and if used pro-actively can be a potential source of
competitive advantage. Trade credit can also be used strategically as a marketing tool to attract new
and large customers and build a long-term relationship with them, gain greater market share, create
cost and operating efficiencies and enhance corporate image.
Please contact [email protected] for further information.