Firms' recourse to trade credit and the relationship with bank credit in Spain

Miguel Garcia-Posada, Sergio Mayordomo, Álvaro Menéndez and Maristela Mulino

Financial Stability Review, 2025, issue Autumn

Abstract: This article examines the main characteristics of trade credit in Spain and the changes therein in the period from 2008 to 2023. In 2023, commercial borrowing represented 21% of Spanish firms’ total liabilities. In the same year, the average payment period (APP) was slightly above 60 days, sharply down from the nearly 90 days recorded in 2009, partly as the result of regulatory changes. These figures vary significantly across production sectors. The findings show that one way in which some firms fund themselves in response to problems in gaining access to bank credit is by lengthening their APP. This strategy is particularly prevalent among firms with worse credit quality, which generally face greater constraints in accessing this type of financing. Nevertheless, lags in paying suppliers could also indicate a deterioration in credit quality, as reflected in defaults on bank loans. Hence, the correlation between probability of default on bank loans and APP is not linear and also depends on credit quality. Specifically, financing through trade credit with comfortable but not excessive repayment periods helps all kinds of firms reduce defaults on banking sector loans inasmuch as it acts as a liquidity buffer. By contrast, when there are severe payment delays, the correlation between probability of default and APP turns positive and increases in the case of firms with worse credit quality, probably because firms that fall behind in paying their suppliers are also often late in paying their bank creditors.

Date: 2025
Note: 49
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