Trade Credit Strategy Research Articles

TRADE CREDIT POLICY AND THE FINANCIAL SITUATION OF DAIRY COOPERATIVES

Aim: The aim of the study is to examine the financial health of dairy cooperatives in relation to their credit position and trade credit strategy. Methods: Using the author’s synthetic indicator, the position and strategy for granting trade credit were determined, and the levels of profitability, liquidity, debt, and management efficiency were assessed in separate groups of entities: conservative, moderate, and aggressive recipients, versus conservative, moderate, and aggressive providers. The research carried out in the field of trade credit management at dairy cooperatives allowed us to establish that the financial position of the analyzed entities varied depending on their credit position and trade credit strategy. Results: The highest level of ROE was found in the group of entities categorized as conservative recipients, where this indicator was 11.1%. Simi­larly, the group of moderate providers also had a high level of 7.1%. On the other hand, the lowest level was found in the return on sales indicator, which was 0.3% and 0.4% in the moderate recipient and aggressive provider groups, respectively. Additionally, cooperatives following a conservative trade credit strategy had a higher level of return on sales compared to the cooperatives classified in the aggressive provider group. Conclusions: The profitability of assets, funds, and sales, as well as the level of liquidity, varied among the distinguished group of cooperatives based on their position and commercial credit strategy. However, there was no variation observed in terms of the level of indebtedness.

A Supply Chain Model with Learning Effect and Credit Financing Policy for Imperfect Quality Items under Fuzzy Environment

In this paper, the seller offers a credit period to his buyer for more sales and the buyer accepts the seller’s policy to gain more profit, and it is assumed that the seller has defective and non-defective items. When the seller provides lots for sale to his buyer then, the buyer separates the whole lots with the help of inspection process into defective and perfect quality items. Further, in this scenario, the percentage of defective items present in the lot follows the S-shape learning curve and it is also considered that the demand rate is imprecise in nature. Here, the demand rate assumes a triangular fuzzy number due to the imprecise nature and it is the model assumption. Based on this assumption, we developed an inventory model with the effect of learning and trade credit strategy under a fuzzy environment for the buyer. The buyer’s total profit has been optimized concerning the order quantity in the fuzzy environment where order quantity has been assumed as a decision variable. The results of this model were verified with the help of numerical examples and sensitivity analysis. We compared the buyer’s total profit in a crisp and fuzzy environment and the buyer gained more profit in a fuzzy environment compared to the crisp environment. Moreover, we compared the results with and without the effect of learning and trade credit on the buyer’s ordering policy and obtained a positive effect on the ordering policy in the numerical section. We determined positive results from the sensitivity analysis, which proved that the trade credit policy will be beneficial for both partners of the supply chain.

Deterioration Control Decision Support System for the Retailer during Availability of Trade Credit and Shortages

The deterioration rate is a significant aspect of perishable goods. Since perishable items will always deteriorate, there are effective methods for reducing the rate of deterioration. Furthermore, in the existing inventory control literature, the deterioration rate is often viewed as an exogenous component. Keeping this problem in mind, this article develops the perishable inventory control system from the retailer’s perspective in which: (i) the deterioration rate is a controllable factor and suggests a new fresh quality technology (FQT) indicator, (ii) demand is determined by the perishable product’s quality, that is controlled by its rate of deterioration, (iii) the credit duration is predefined, and (iv) shortages are expected. The key goal is to demonstrate that there is an ideal quantity of the order that minimizes the retailer’s overall cost in terms of cycle time and deterioration rate. Finally, theoretical results are validated by solving two numerical illustrations and conducting a sensitivity analysis of the main factors resulting from the following managerial implications: (i) if the range of deterioration is between zero and one then the retailer should invest in the preservation factor to preserve the perishable product and if greater than one the retailer should not invest in the preservation factor, (ii) credit period significantly reduces the total cost. Hence, this trade credit strategy is more beneficial to the model.

Linguistic attributes and trade credit: Evidence from textual analysis of earnings conference calls

AbstractIn this study, we explore how the linguistic attributes of verbal language influence suppliers by focusing on trade credit using the earnings conference call setting. We hypothesize and find that suppliers tend to extend more trade credit to customers if managers of the customer firm use more positive tone relative to negative tone on conference calls, indicating that suppliers are likely to disentangle the positivity and negativity of managers’ tones of their customer firms on conference calls and adjust their trade credit strategy accordingly. We also find that suppliers are likely to grant less trade credit to customer firms if managers of the customer firm use more uncertainty and litigious words on calls. Our results are supported by a number of robustness tests. Overall, our results suggest that the linguistic attributes of customer firms on earnings conference calls have a significant impact on suppliers’ perception and assessment of future performance and uncertainty in customer firms.

Optimal Replenishment Policies and Trade Credit for Integrated Inventory Problems in Fuzzy Environment

In this highly volatile, uncertain, complex, and ambiguous (VUCA) environment, a fuzzy inventory optimization problem is a hot topic that received the most attention from both academicians and practitioners. In this paper, the authors have studied the integrated inventory problems under trade credit in fuzzy environments, where the demand rate and deterioration rate are taken here as triangular fuzzy numbers. Accordingly, three types of fuzzy programming models as fuzzy expected cost minimization model, fuzzy α-cost minimization model, and credibility maximization model are built according to different management goals. Since the problem is shown to be NP-hard, this research focuses on proposing a hybrid intelligent algorithm by integrating fuzzy simulation, neural network, and genetic algorithm for solving these models. Then, some numerical examples are presented to illustrate the benefits of the models and evaluate the efficiency of the algorithms. The computational experiments show that the trade credit strategy has a positive impact on improving the supply chain’s performance and reducing its total cost. In addition, the maximum relative error of the objective values is less than 1%, which implies that the hybrid intelligent algorithm is robust to the parameter settings and effective in solving our models. Finally, the practical implications are discussed and useful managerial insights are given.

Corporate value and trade-credit policies: evidence from China

ABSTRACT This study evaluates the nexus of enterprise value and trade-credit strategies. Fixed-effects modeling is used for the baseline outcomes, and a difference-in-difference approach is applied as a quasi-natural experiment. The estimates are robust to alternative measures and distant covariates. The findings validate that enterprise value has a positive (negative) impact on trade-credit (supplies), (demand). The said effect is more pronounced in SOEs, revealing a critical role in capital mobilization. The additional analyses show that financially constrained and equity reliant firms are more likely to exploit firm value in trade-credit management. The micro aspect of this study suggests that enterprise value can allow managers to shape non-price competitive strategies and it also offers incentives to maintain financial slack. On a macro level, the study suggests that enterprise value has a critical role in capital mobilization and enhancing the purchasing power in the overall economy.

Getting a Foot in the Door: Trade Credit Strategies and the Pursuit of Entrepreneurial Internationalisation

Trade credit strategies – comprised of the approaches used by internationalising firms to set the payment terms and schedules for their customers – are one of the few levers available to new small firms to overcome the liability of outsidership. They are vital to entrepreneurial firms seeking to achieve international market growth in the context of scarce resources and limited knowledge of foreign markets and partners. Though under-explored and under-theorised to-date, trade credits may unlock material insights for predictive models of entrepreneurial growth. As such, our study develops and tests the notion that trade credits constitute an important mechanism for entrepreneurial firms to initiate goodwill and generate valuable referrals. However, our findings also suggest that while riskier trade credit strategies help first-time exporters combat exclusion from networks key to a firm’s ability to internationalise, the attendant risks often have a detrimental impact on long-term profitability and survival, thus creating a decision-making conundrum for growth-aspirants. Drawing upon a sample of 88,000 export transactions by 1040 small lumber firms from 52 countries, we advance theory and practice by showing how trade credit strategies shape both growth and performance.

Strategic Provision of Trade Credit in a Dual-Channel Supply Chain

This study focuses on a a dual-channel supply chain that consists of a capital-constrained brick-and-mortar retailer and a manufacturer, where a manufacturer can simultaneously sell products through a traditional retail channel and a direct online channel. Supplementary pricing strategy and competitive pricing strategy are simulated in our model, and we find that the former one is the better choice for the manufacturer when the retailer suffers capital constraints. In our analysis, the capital constraint on retailer could mitigate the price competition between two channels, and it may be beneficial to the manufacturer under certain conditions. Our findings show that the manufacturer should strategically provide trade credit to retailers rather than unconditionally provide it. We present two trade-credit strategies (trade credit with positive interest rate and trade credit with zero interest rate) and suggest that the manufacturer should choose an appropriate trade-credit strategy according to the initial capital of the retailer. To guide the manufacturer when and how to provide trade credit, we conduct several numerical simulations based on our results and further plot out a graph to direct the manufacturer to an appropriate strategy of trade credit.

Impact of Interest Rate Risk on Supply Chain Network under Bank Credit and Trade Credit Financing

The purpose of this study is to propose a methodology that reflects the impact of interest rate risk on firms in supply chain network under bank financing and trade credit and further describe how trade credit improves the impact of interest rate risk on supply chain network through a financial flow equilibrium. A mean-variance framework and a network equilibrium analysis are integrated to provide a modeling framework. The model allows for the investigation of how bank credit financing (BCF) and trade credit financing (TCF) affect the payment strategy and financial flow of interconnected firms in supply chain networks and how they are affected by interest rate risks. The optimal behavior of manufacturers and retailers is described through variational inequality. We construct a supply chain network equilibrium model and derive qualitative properties of the solution and the function that becomes assimilated to the variational inequality problem. Additionally, variational inequality is solved using the modified projection method. This study extends the research on the impact of interest rate risk on the decision in supply chain network of firms. While other studies focus on the game between banks and firms, only a few authors have made attempts to examine the game between one manufacturer and one retailer in supply chain. An effective trade credit strategy is obtained by balancing cash and credit transactions. Through the case study, we learn how to balance the capital flow effectively to improve the negative impact of interest rate risk on supply chain.

STOCK LIQUIDITY AND CORPORATE TRADE CREDIT STRATEGIES: EVIDENCE FROM CHINA

This study investigates the nexus of stock liquidity and trade-credit policies in China from 2002 to 2017. The estimates are robust to alternative proxies, various fixed-effects, and the exogenous impact of Chinese split share structure reforms (SSSR) 2005-06 is investigated through the difference-in-difference analysis. The results validate that stock liquidity significantly impacts firms’ capacity to produce more trade credit supplies and less reliant on trade credit demand. The study applied SUEST analysis to investigate the effect of the Chinese institutional setting. The nexus of stock liquidity and trade credit strategies is substantial in state-owned enterprises. Additional analysis revealed that the said association is more visible to credit-constrained and equity-reliant enterprises. The policymakers should focus on market liquidity because it elevates firms’ capacity to mobilize capital through trade credit provisions. The micro aspect of this study suggests that stock liquidity allows managers to shape non-price competitive strategies and avoid excessive usage of trade credits.

Optimal credit period and ordering policy with credit-dependent demand under two-level trade credit

This paper investigates the retailer's trade credit strategy and ordering policy in a two-echelon supply chain consisting of one supplier and one retailer. The retailer accepts upstream trade credit from the supplier while offers downstream trade credit to consumers, and the relationship between the upstream and downstream credit period is uncertain. The market demand depends on both the downstream trade credit and the random initial demand rate, and granting downstream trade credit increases not only sales but also default risk. This paper tries to find the retailer's optimal decisions on credit period, replenishment cycle, and order quantity so as to maximize the retailer's profit. It is shown that there exists a unique decision for the retailer. Some numerical examples are given to verify our results and provide more managerial insights. It is found that the retailer is more willing to provide trade credit under higher marginal profit, and that providing downstream trade credit is beneficial to both the retailer and supplier.

Optimal Procurement Strategy for Supply Chain with Trade Credit and Backorder under CVaR Criterion

Some capital-constrained and risk-averse retailers may unable to obtain financing from banks due to insufficient collateral and high loan costs, so some retailers tend to use trade credit financing to ease their financial pressure. For the two echelon supply chain composed of a well-funded supplier and a capital-constrained retailer with risk-averse preference, a trade credit strategy model with the supplier-led is established in this paper. By analyzing both parties’ benefits, we derive the model solution and provide optimal decisions to all petitioners. The results obtained in this paper show that the optimum order quantity under the Conditional Value-at-Risk (CVaR) criterion declines w.r.t. the confidence level, and the wholesale price of the supplier increases w.r.t. the confidence level. The reason is that when the retailer makes fewer orders, the supplier will correspondingly increase the wholesale price to maximize their profit. On the other hand, the ordering policy with allowing backorder will make the retailer place fewer orders. Finally, the proposed model is indicated by the given numerical experiments.

Retailer’s joint pricing model through an effective preservation strategy under a trade-credit policy

Sustainable inventory management is a common issue for any industry. This proposed study explains a representation of mathematical modelling for maintaining sustainability through the preservation technology for deteriorating products and trade-credit strategy for sustainable marketing. Based on the actual life circumstances, it is found that the demand for deteriorated products is influenced by the increasing frequency of advertising and preservation technology. The foremost aim of this study is to maintain sustainability with optimal pricing and optimal strategies to invest in preservation technology and optimal cycle length to take full advantage of the total profit. For solving the model, a classical optimization technique is utilized, and some theoretical results are shown with a graph of the profit function. Couples of experiments compare the proposed results and the existing literature and give some outcomes for different deterioration types. To illustrate and justify the model, a sensitivity analysis conceded for demonstrating the proposed model’s flexibility by changing one parameter while keeping others fixed. The result shows that the trade-credit strategy under the preservation technology makes the management’s most substantial marketing benefit.

Suppliers’ trade credit strategies with transparent credit ratings: Null, exclusive, and nonchalant provision

Due to poor ability to resist risks, penniless retailers face high bankruptcy risk, which may spread to suppliers who provide trade credit for them and then affect suppliers’ trade credit provision decision. A supplier who transacts with downstream retailers with heterogeneous credit ratings has three trade credit provision strategies: null (the supplier does not provide trade credit), exclusive (the supplier provides trade credit for only a part of retailers), and nonchalant trade credit provision (the supplier provides trade credit for all retailers). In this study, we establish a two-echelon supply chain model comprising one supplier and two capital-constrained retailers to investigate the supplier’s and retailers’ preferences for different trade credit provision patterns. By analyzing and comparing the three trade credit provision strategies, we find that the supplier is always beneficial from providing nonchalant trade credit. However, nonchalant trade credit provision is only attractive for the excluded retailer when his creditworthiness is poor and for the privileged retailer, nonchalant trade credit provision is never a preferable option, which leads to a counterintuitive situation that the three parties can never reach an agreement on trade credit provision pattern. Our results indicate that credit rating information serves as a risk warner for the supplier, allowing the supplier to evaluate the retailers’ repayment ability accurately and set interest rates accordingly, but this is unfavorable to the retailers. For policy-makers, they should start with reducing the risk of default in trade credit to promote the development of trade credit.

Does air pollution matter in a supplier's trade credit strategy? Evidence from an emerging market

This study analyzes the impact of air pollution on the city in which customers are located on the trade credit strategy of their suppliers. Following the framework of environmental stress theory, we hypothesize that suppliers change their trade credit strategy to grant less trade credit to their customers located in cities with severe air pollution. Our findings are consistent with our hypothesis. We find that the adverse effects of air pollution occur through financial constraints, operating risk, and customers' default risk, corroborating the underlying logic of our proposed hypothesis. Additional analyses suggest that changes in a supplier's trade credit are more pronounced when a customer is in a polluting industry, has low total factor productivity, receives fewer government subsidies, has fewer bank loans, is far from its suppliers, and has poor inventory management.

Retailer’s Operational Decision Based on EOQ Model with Upstream Flexible Two-Part Trade Credit and Downstream Partial Trade Credit

Flexible two-part trade credit is widely used in supply chain, however, there is scant research about inventory management engaged in flexible two-part trade credit strategy. This paper bridges this gap and studies a new two-level trade credit based on an EOQ model in which the supplier provides flexible two-part trade credit to the retailer and the retailer provides partial trade credit to its customer. We adopt a convex optimization method to obtain retailer’s optimal operational decision (i.e., the optimal ordering cycle, the optimal fraction of purchase cost that paid in advance, and the optimal credit period for its downstream customer). Moreover, we design a numerical algorithm to solve this model computationally. We find that: (1) the retailer is not sensitive to small cash discount provided by the supplier; (2) the length of credit period in flexible two-part trade credit strategy will affect the customer and retailer: the shorter one influences the retailer’s behavior, but not the customer’s; the longer one influences the customer’s behavior, but not the retailer’s; (3) the retailer can control its risk through partial trade credit.

Trade Credit Financing for Two Competitive Retailers in a Capital-Constrained Supply Chain

This study examines trade credit strategy in a supply chain framework including one manufacturer and two competitive retailers under a Cournot game setting. We consider three supply chain models depending on how many retailers have capital constraints: (i) Model NN (i.e., none of the retailers has capital constraints); (ii) model AN (i.e., a single retailer has capital constraint); and (iii) model AA (i.e., dual retailers have capital constraints). We analyze equilibrium strategies of supply chain under three models, and show that the manufacturer sets a higher price for a capital-constrained retailer than that for a fund-abundant retailer. Notably, the fund-abundant retailer’s wholesale price is not dependent on its rival’s capital status. Certain numerical experiments have been performed to show the impact of retailer’s competition, market disturbance, and production cost on trade credit financing strategy. Findings reveal that by increasing the horizontal competition intensity, the capital-constrained retailer benefits more from trade credit. With a higher market disturbance or a higher production cost, the manufacturer is more willing to offer trade credit to capital-constrained retailers.

A sustainable inventory system with the advanced payment policy and trade-credit strategy for a two-warehouse inventory system

Purpose This paper aims to consider a sustainable inventory model with price dependent demand, non-instantaneous deterioration rate, discount facility, partially backlogged shortages and advance and delay in payments for a two-warehouse system. Design/methodology/approach This model considered a non-instantaneous deterioration, which starts after a certain period with a constant rate. The deterioration rate in the rented warehouse is more compared to own warehouse. The proposed model focused on two things. The first one is to the benefits of the advance payments strategy and delayed payment for the retailer and supplier, where the two-warehouse system is available and the second one is using an appropriate discount facility on no of the installment to maximize the total profit. The classical optimization technique is used to solve the problem. Findings The combination of trade-credits and advance payments is initiated to provide more benefits to the retailer. The findings prove that advance payments, which are received from the retailer to the supplier are beneficial for the supplier, who can influence the demand increase because of higher lower selling prices. Decreasing the selling price is used as a catalyst to increase demand. It also extends the discount concept of Khan et al. (2019, 2019b). Research limitations/implications This model is limited by the fact that it does not consider variable deterioration. Therefore, the proposed inventory model could be extended by considering variable deterioration, as well as fully backlogged shortages and time-dependent demand function. Originality/value The study simultaneously considers a non-instantaneous deterioration inventory model, advance-payment, trade-credit for a sustainable two-warehouse inventory system. From the literature search to the best of knowledge no researcher has undergone this sort of study.

FINANCIAL SITUATION OF THE SELECTED DAIRY COMPANIES WITH DIFFERENT STRATEGIES OF GRANTING TRADE CREDIT

The goal of the research was to determine financial situation of selected dairy cooperatives according to their strategies of trade credit. Ratios of liquidity, modified profitability and debt were used in the analysis. The research covered 18 dairy cooperatives operating in Poland. The financial situation of dairy cooperatives differed according to a trade credit strategy. Dairy cooperatives with conservative strategies of trade credit were characterized by the lower profitability and liquidity as well as higher debt ratios than companies using aggressive strategies. This gave an evidence of higher financial efficiency of entities with aggressive strategies of trade credit. Application of aggressive strategy of trade credit could stimulate the demand for goods and result in rising revenues and profitability.

An analysis of replenishment model of deteriorating items with ramp-type demand and trade credit under the learning effect

Effective management and control strategies are prerequisites in order to optimise inventory related decisions. Robust replenishment model can reduce overall inventory cost and increase financial surplus for the organisation. Adoption of trade credit strategy for deteriorating items provides economic benefits to the retailer (buyer) in settling the account for the fixed period and boosts the sales of the organisation. Therefore, in this proposed model trade credit is introduced and demands pattern follows ramp-type which is quadratic function of time for decaying items. Shortages are allowed and partially backlogged where the backlogging rate is dependent of waiting time. The inflation factor is also considered to propose realistic environment. Additionally, this study also considered the cost components which are followed by learning curve to improve the total inventory cost with strategic scheduling. Finally, the model is analysed through numerical examples and the sensitivity analysis is performed to test the robustness of the model.