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

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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)

  • Beat Reber

    (Institute for Enterprise and Innovation, Nottingham University Business School, University of Nottingham, Jubilee Campus, Wollaton Road, Nottingham, NG8 1BB, UK)

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.

Suggested Citation

  • Carole Howorth & Beat Reber, 2003. "Habitual late payment of trade credit: an empirical examination of UK small firms," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 24(6-7), pages 471-482.
    • Handle: RePEc:wly:mgtdec:v:24:y:2003:i:6-7:p:471-482
    DOI: 10.1002/mde.1128
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    References listed on IDEAS

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    Cited by:

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    2. Belinda L. Del Gaudio & Gabriele Sampagnaro & Claudio Porzio & Vincenzo Verdoliva, 2022. "The signaling role of trade credit in bank lending decisions: Evidence from small and medium‐sized enterprises," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 49(1-2), pages 327-354, January.
    3. Daniel Seifert & Ralf W. Seifert & Olov H.D. Isaksson, 2017. "A test of inventory models with permissible delay in payment," International Journal of Production Research, Taylor & Francis Journals, vol. 55(4), pages 1117-1128, February.
    4. Umeair Shahzad & Jing Liu & Faisal Mahmood & Fukai Luo, 2021. "Corporate innovation and trade credit demand: Evidence from China," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(6), pages 1591-1606, September.
    5. Jan Bartholdy & Cesario Mateus & Dennis Olson, 2012. "Do Small and Medium Sized Enterprises Match Their Assets and Liabilities? Evidence from Portugal," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 6(4), pages 13-31.
    6. Tang, Ying & Moro, Andrea, 2020. "Trade credit in China: Exploring the link between short term debt and payables," Pacific-Basin Finance Journal, Elsevier, vol. 59(C).
    7. Zainudin Nasruddin & Regupathi Angappan, 2010. "Manufacturing SMEs' Credit Collection Period and its Determinants: Some Evidence from Malaysia," Folia Oeconomica Stetinensia, Sciendo, vol. 9(1), pages 83-104, January.
    8. Seifert, Daniel & Seifert, Ralf W. & Protopappa-Sieke, Margarita, 2013. "A review of trade credit literature: Opportunities for research in operations," European Journal of Operational Research, Elsevier, vol. 231(2), pages 245-256.
    9. Jia, Fu & Blome, Constantin & Sun, Hui & Yang, Yang & Zhi, Bangdong, 2020. "Towards an integrated conceptual framework of supply chain finance: An information processing perspective," International Journal of Production Economics, Elsevier, vol. 219(C), pages 18-30.
    10. Claudinê Jordão de Carvalho, 2015. "Conditioning Factors of Late Payment of Trade Credit," Brazilian Business Review, Fucape Business School, vol. 0(2), pages 72-91, August.
    11. Nielen, Sebastian, 2013. "Product Innovation and Trade Credit Demand and Supply: Evidence from European Countries," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79997, Verein für Socialpolitik / German Economic Association.
    12. Van den Bogaerd, Machteld & Aerts, Walter, 2015. "Does media reputation affect properties of accounts payable?," European Management Journal, Elsevier, vol. 33(1), pages 19-29.
    13. Woo Sung Kim, 2016. "Determinants of Corporate Trade Credit: An Empirical Study on Korean Firms," International Journal of Economics and Financial Issues, Econjournals, vol. 6(2), pages 414-419.

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