THE EFFECT OF (REVERSE) FACTORING TRANSACTIONS ON EUROPEAN COUNTRIES’ LATE PAYMENT

Abstract

Late payment by companies is a quiz for managers and governments. Its occurrence, in all industries, has a negative impact on companies' liquidity and can even lead some of them to bankruptcy – especially the less structured ones. In macroeconomic terms, this situation also has adverse implications for countries' economic growth. Being confronted with these issues, banks provide financial instruments - such as factoring and reverse factoring - which potentially can mitigate these undesirable effects. Thus, the objective of this study is to analyze if companies' use of both financial instruments affects their late payment at the country level. To the best of our knowledge, this is the first paper to do so. Therefore, a final sample of 2,245 observations from 28 European countries is considered, being 16 from developed and 12 from emerging ones. The study hypotheses are tested by a logistic regression model. As a result, there is an unexpected positive relationship between both financial instruments and companies' late payments at a country level. It is possible that undercapitalized companies with inadequate credit practices consider late payment as an ordinary source of credit. This study contributes to academic knowledge by analyzing the effect of factoring and reverse factoring on companies' late payments in European countries. The results can also provide insights into firms' financing and supplier management policies. Moreover, countries and regulators can adjust their legislation in order to encourage a better level of governance in their markets.