Trade credit profitability measurement: application in a wholesalerdistributor case
Credit extension evaluation is traditionally marked by customer’s credit risk and his business potential, normally, the profitability that limit utilization may provide the company is not considered. Therefore, the purpose of this paper is to present a trade credit extension profitability measurement model. The literature used for the theoretical basis involves the profitability concept of the Theory of Restrictions (TOC) and the performance measure calculation as in RAROC model. Proposed model was applied in a wholesalerdistributor company and its results have enabled concluding that credit extension to customers rated as low risk is not always the most profitable option. The decision of companies that only take into consideration credit risk and customer size to set the credit limit may entail incorrect decisions that are decreasing the company’s gain instead of increasing the wealth of its owners.
Volume (Year): 8 (2011)
Issue (Month): 2 (April)
|Contact details of provider:|| Postal: |
Phone: +55 27 4009-4423
Fax: +55 27 4009-4422
Web page: http://www.bbronline.com.br/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ferris, J Stephen, 1981. "A Transactions Theory of Trade Credit Use," The Quarterly Journal of Economics, MIT Press, vol. 96(2), pages 243-70, May.
- Bams, Dennis & Lehnert, Thorsten & Wolff, Christian C.P., 2005.
"An evaluation framework for alternative VaR-models,"
Journal of International Money and Finance,
Elsevier, vol. 24(6), pages 944-958, October.
- Bams, Dennis & Lehnert, Thorsten & Wolff, Christian C, 2002. "An Evaluation Framework for Alternative VaR Models," CEPR Discussion Papers 3403, C.E.P.R. Discussion Papers.
- Smith, Janet Kiholm, 1987. " Trade Credit and Informational Asymmetry," Journal of Finance, American Finance Association, vol. 42(4), pages 863-72, September.
- Brennan, Michael J & Maksimovic, Vojislav & Zechner, Josef, 1988. " Vendor Financing," Journal of Finance, American Finance Association, vol. 43(5), pages 1127-41, December.
When requesting a correction, please mention this item's handle: RePEc:bbz:fcpbbr:v:8:y:2011:i:2:p:22-41. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sarah Lasso)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.