Habitual late payment of trade credit: an empirical examination of UK small firms

Carole Howorth and Beat Reber
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Carole Howorth: Institute for Enterprise and Innovation, Nottingham University Business School, University of Nottingham, Jubilee Campus, Wollaton Road, Nottingham, NG8 1BB, UK, Postal: Institute for Enterprise and Innovation, Nottingham University Business School, University of Nottingham, Jubilee Campus, Wollaton Road, Nottingham, NG8 1BB, UK
Beat Reber: Institute for Enterprise and Innovation, Nottingham University Business School, University of Nottingham, Jubilee Campus, Wollaton Road, Nottingham, NG8 1BB, UK, Postal: Institute for Enterprise and Innovation, Nottingham University Business School, University of Nottingham, Jubilee Campus, Wollaton Road, Nottingham, NG8 1BB, UK

Managerial and Decision Economics, 2003, vol. 24, issue 6-7, 471-482

Abstract: Quantitative and qualitative data are examined in an analysis of habitual late payment of trade credit by UK small firms. Multivariate logistic regression is employed to test the influence of variables expected to discriminate between small firms which pay late habitually and those which never or only occasionally pay late. Case studies extend quantitative analysis by validating interpretation of the results and providing explanations for unexpected outcomes. The results provide strong evidence of a financing demand for habitual late payment. There is a positive relationship between habitual late payment and difficulty obtaining bank finance and late payment by debtors and a negative relationship with the use of long term sources of finance. The influence of relationships between customer and supplier is shown to be complex. A concentrated supplier base is shown to be positively associated with late payment and case studies provide evidence that this is because increased knowledge of suppliers' credit management procedures is used to pay late without penalties. The implications of this result for the large number of firms that do not enforce their statutory right to interest on late payment are highlighted. Copyright © 2003 John Wiley & Sons, Ltd.

Date: 2003
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Persistent link: https://EconPapers.repec.org/RePEc:wly:mgtdec:v:24:y:2003:i:6-7:p:471-482

DOI: 10.1002/mde.1128

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