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Contractor financial credit limits; their derivation and implications for materials suppliers

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  • J. Nicholas
  • G. D. Holt
  • M. Mihsein

Abstract

Current methodologies for 'calculating' contractors' credit limits (for supply of construction materials) are discussed and critically appraised. It is highlighted that credit limit imposition should be a function of a supplier's financial characteristics as well as potential debtors' probability of defaulting upon repayment. A conceptually new approach is presented to identify whether an additional contractor's trade results in a worthwhile gain in utility for the supplier. It is identified, inter alia, that (i) allowing very few contractors credit facilities that account for a large proportion of suppliers' potential profits, (ii) having inaccurate creditworthiness evaluation procedures, and (iii) operating on low targeted profit margins are the characteristics that inflict maximum financial risk upon materials suppliers.

Suggested Citation

  • J. Nicholas & G. D. Holt & M. Mihsein, 2000. "Contractor financial credit limits; their derivation and implications for materials suppliers," Construction Management and Economics, Taylor & Francis Journals, vol. 18(5), pages 535-545.
    • Handle: RePEc:taf:conmgt:v:18:y:2000:i:5:p:535-545
    DOI: 10.1080/014461900407347
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    Cited by:

    1. Qingbin Cui & Makarand Hastak & Daniel Halpin, 2010. "Systems analysis of project cash flow management strategies," Construction Management and Economics, Taylor & Francis Journals, vol. 28(4), pages 361-376.

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