Measuring Retailers’ Timing of Payments to Suppliers in Good and Bad Economic Times

Martin Gosman () and Aoife Reynolds ()
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Martin Gosman: Department of Economics, Wesleyan University
Aoife Reynolds: Department of Economics, Wesleyan University

No 2022-003, Wesleyan Economics Working Papers from Wesleyan University, Department of Economics

Abstract: Days’ purchases in accounts payable (DPAP) is introduced as a measure to reveal how long retailers take to pay suppliers for merchandise purchases. Data for the 2004-2019 period confirms conventional wisdom that large retailers increasingly delay payments, not so much out of economic necessity, but because they possess the power to do so. Accounts-payable stretching by apparel retailers in 2020 is compared to their stretching during the previous 15 years. This sector reported greatly diminished sales and cash from operations in 2020 as COVID sharply reduced consumer purchases. In response, apparel retailers delayed payments to a degree never seen before, with the larger firms increasing DPAPs by more in 2020 than during the prior 15 years. DPAP is seen to represent a useful financial measure to gauge the extent to which powerful retailers dictate payment terms to suppliers, in good and bad economic times.

Keywords: accounts-payable stretching; retailer-supplier relationships; COVID’s effect on retailers’ payments (search for similar items in EconPapers)
Pages: 6 pages
Date: 2022-06
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Published in Business Education Innovation Journal, June 2022

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Persistent link: https://EconPapers.repec.org/RePEc:wes:weswpa:2022-003

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