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Trade credit and customer relationships


Author Info

  • Barbara Summers

    (Accounting & Finance Division, Leeds University Business School, University of Leeds, Leeds LS2 9JT, UK)

  • Nicholas Wilson

    (Credit Management Research Centre, Leeds University Business School, University of Leeds, Leeds LS2 9JT, UK)


Trade credit is an important economic phenomenon, and a variety of theories have been put forward to explain the decisions firms make on credit extension. The ways in which credit can be used as a strategic tool to support corporate objectives has not, however, been fully discussed. The results presented here provide some support for the extant theory on trade credit extension and for recent empirical papers in this area (e.g. Ng et al., 1999; Petersen and Rajan, 1994). However, our results suggest that trade credit granting has a set of subtle and complex motivations over and above those predicted by standard theory. In particular trade credit extension can be used as a many-faceted marketing|relationship management tool and|or as a means of signalling information to the market or to specific buyers about the firm, its products and its future prospects|commitment. Much of credit extension can be seen as customer focused; for example, encouraging frequent purchasers which offer the potential for relationship development or accommodating customers' demand for credit to help finance their production period. The requirements|bargaining power of large customers can influence a firm to extend more credit. Firms will vary terms in anticipation of capturing new business, to attract specific customers and in order to achieve specific marketing aims. Copyright © 2003 John Wiley & Sons, Ltd.

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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

Volume (Year): 24 (2003)
Issue (Month): 6-7 ()
Pages: 439-455

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Handle: RePEc:wly:mgtdec:v:24:y:2003:i:6-7:p:439-455

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  1. Smith, Janet Kiholm, 1987. " Trade Credit and Informational Asymmetry," Journal of Finance, American Finance Association, American Finance Association, vol. 42(4), pages 863-72, September.
  2. Schwartz, Robert A., 1974. "An Economic Model of Trade Credit," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 9(04), pages 643-657, September.
  3. Nadiri, M Ishaq, 1969. "The Determinants of Trade Credit in the U.S. Total Manufacturing Sector," Econometrica, Econometric Society, Econometric Society, vol. 37(3), pages 408-23, July.
  4. Petersen, Mitchell A & Rajan, Raghuram G, 1994. " The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, American Finance Association, vol. 49(1), pages 3-37, March.
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Cited by:
  1. Ketskeméty, László & Pálinkó, Éva & Szabó, Márta, 2010. "Kereskedelmi hitelt alakító paraméterek a magyarországi feldolgozóipari vállalatok körében
    [Parameters for commercial credit among Hungary's manufacturing companies]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(11), pages 994-1012.
  2. Massimo Omiccioli, 2005. "Trade Credit as Collateral," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 553, Bank of Italy, Economic Research and International Relations Area.
  3. Astrid K. Chludek, 2011. "A note on the price of trade credit," Managerial Finance, Emerald Group Publishing, Emerald Group Publishing, vol. 37(6), pages 565-574, June.
  4. Werner Bönte & Sebastian Nielen, 2010. "Innovation, Credit Constraints, and Trade Credit: Evidence from a Cross-Country Study," Schumpeter Discussion Papers, Universitätsbibliothek Wuppertal, University Library sdp10005, Universitätsbibliothek Wuppertal, University Library.
  5. Delli Gatti, Domenico & Gallegati, Mauro & Greenwald, Bruce & Russo, Alberto & Stiglitz, Joseph E., 2010. "The financial accelerator in an evolving credit network," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 34(9), pages 1627-1650, September.
  6. Frederic Boissay & Reint Gropp, 2007. "Trade Credit Defaults and Liquidity Provision by Firms," Working Paper Series: Finance and Accounting, Department of Finance, Goethe University Frankfurt am Main 179, Department of Finance, Goethe University Frankfurt am Main.
  7. TSURUTA Daisuke, 2009. "Customer Relationships and the Provision of Trade Credit during a Recession," Discussion papers, Research Institute of Economy, Trade and Industry (RIETI) 09043, Research Institute of Economy, Trade and Industry (RIETI).
  8. Domenico Delli Gatti & Mauro Gallegati & Bruce Greenwald & Alberto Russo & Joseph Stiglitz, 2009. "Business fluctuations and bankruptcy avalanches in an evolving network economy," Journal of Economic Interaction and Coordination, Springer, Springer, vol. 4(2), pages 195-212, November.


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