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The Role of Trade Credit in Activities of Small and Medium-Sized Enterprises

Author

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  • Ekaterina A. Panova

    (State University of Management, Moscow 109542, Russian Federation)

Abstract

Trade credit has a special meaning for small and medium-sized enterprises (SMEs). When they act as a supplier, it allows them to increase sales and cash flows, and helps establish and maintain permanent relationships with clients. Deferred payment provision is a tool for non-price competition, giving a client time to make sure of product quality. Trade credit as a financial source is an important alternative to bank lending. The article is devoted to studying the determinants of accounts payable in Russian industrial SMEs. It is based on the financial indicators calculated using the SMEs’ accounting statements for the period 2010–2018, published by Rosstat. The statistical data analysis has led to the conclusion that accounts payable are the main borrowed financial source for Russian industrial SMEs. The results of the regression analysis demonstrate a direct dependence of the accounts payable amount on sales growth and a reverse dependence of the former on the liquidity both in small and medium enterprises. Small businesses are also characterized by a negative relationship between return on sales and the accounts payable amount.

Suggested Citation

  • Ekaterina A. Panova, 2020. "The Role of Trade Credit in Activities of Small and Medium-Sized Enterprises," Finansovyj žhurnal — Financial Journal, Financial Research Institute, Moscow 125375, Russia, issue 6, pages 126-135, December.
    • Handle: RePEc:fru:finjrn:200609:p:126-135
    DOI: 10.31107/2075-1990-2020-6-126-135
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    References listed on IDEAS

    as
    1. McGuinness, Gerard & Hogan, Teresa & Powell, Ronan, 2018. "European trade credit use and SME survival," Journal of Corporate Finance, Elsevier, vol. 49(C), pages 81-103.
    2. Guillaume Andrieu & Raffaele Staglianò & Peter Zwan, 2018. "Bank debt and trade credit for SMEs in Europe: firm-, industry-, and country-level determinants," Small Business Economics, Springer, vol. 51(1), pages 245-264, June.
    3. Gregory E. Elliehausen & John D. Wolken, 1993. "The demand for trade credit: an investigation of motives for trade credit use by small businesses," Staff Studies 165, Board of Governors of the Federal Reserve System (U.S.).
    4. Francisco-Javier Canto-Cuevas & María-José Palacín-Sánchez & Filippo Di Pietro, 2019. "Trade Credit as a Sustainable Resource during an SME’s Life Cycle," Sustainability, MDPI, vol. 11(3), pages 1-16, January.
    5. Guillaume Andrieu & Raffaele Staglianò & Peter van Der Zwan, 2018. "Bank debt and trade credit for SMEs in Europe: firm-, industry-, and country-level determinants," Post-Print hal-02044268, HAL.
    6. Ekaterina Panova, 2020. "Determinants of capital structure in Russian small and medium manufacturing enterprises," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 15(2), pages 361-375, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    small and medium-sized enterprises (SMEs); trade credit; accounts payable; borrowed funds; capital structure; regression analysis;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General

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