Trade Credit Terms Offered by Small Firms: Survey Evidence and Empirical Analysis
Nicholas Wilson and
Additional contact information
Nicholas Wilson: University of Leeds, Leeds, UK
Journal of Business Finance & Accounting, 2002, vol. 29, issue 3&4, 317-351
Trade credit has been shown to be an important source of short-term finance for smaller firms but small firms are also suppliers of trade credit. There is little empirical evidence on the credit granting decisions of small firms. Previous empirical work (Petersen and Rajan, 1997; and Ng, Smith and Smith, 1999) has focused on credit granting and investment in accounts receivable in larger firms. In this paper we look at the influences on credit granting for the smallest firms, using a sample of firms with an average of 10 employees. As in previous studies we find that product and demand characteristics influence credit terms. Moreover, we find evidence that firm size affects credit extension choices directly by setting limits on the possibilities for economies of scale, but it also impacts indirectly by affecting the firm's access to finance and its bargaining strength "vis-à-vis" suppliers. The dominant position of larger customers in bargaining with small suppliers constrains the impact of other factors on the firm's choice of credit terms. Small firms are also under pressure to conform to industry norms, although lack of resources can be a limiting factor. Constrained firms may make use of two-part terms in an attempt to improve their cashflow. Copyright Blackwell Publishers Ltd 2002.
References: Add references at CitEc
Citations: View citations in EconPapers (50) Track citations by RSS feed
Downloads: (external link)
http://www.blackwell-synergy.com/doi/abs/10.1111/1468-5957.00434 link to full text (text/html)
Access to full text is restricted to subscribers.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:bla:jbfnac:v:29:y:2002-04:i:3&4:p:317-351
Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0306-686X
Access Statistics for this article
Journal of Business Finance & Accounting is currently edited by P. F. Pope, A. W. Stark and M. Walker
More articles in Journal of Business Finance & Accounting from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().