Accounts Receivable Management Policy: Theory and Evidence
ABSTRACT This paper develops and tests hypotheses that explain the choice of accounts receivable management policies. The tests focus on both cross-sectional explanations of policy-choice determinants, as well as incentives to establish captives. The authors find size, concentration, and credit standing of the firm's traded debt and commercial paper are each important in explaining the use of factoring, accounts receivable secured debt, captive finance subsidiaries, and general corporate credit. They also offer evidence that captive formation allows more flexible financial contracting. However, the authors find no evidence that captive formation expropriates bondholder wealth. Copyright 1992 by American Finance Association.
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ABSTRACT: Reverse factoring—a financial arrangement where a corporation facilitates early payment of its trade credit obligations to suppliers—is increasingly popular in industry. Many firms use the scheme to induce their suppliers to grant them more lenient payment terms. By means of a periodic review base stock model that includes alternative sources of financing, we explore the following question: what extensions of payment terms allow the supplier to benefit from reverse factoring? We obtain solutions by means of simulation optimisation. We find that an extension of payment terms induces a non-linear financing cost for the supplier, beyond the opportunity cost of carrying additional receivables. Furthermore, we find that the size of the payment term extension that a supplier can accommodate depends on demand uncertainty and the cost structure of the supplier. Overall, our results show that the financial implications of an extension of payment terms need careful assessment in stochastic settings.European Journal of Operational Research 05/2015; DOI:10.1016/j.ejor.2014.10.052 · 1.84 Impact Factor
Dataset: secret life P&B
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ABSTRACT: Using data from the Kauffman Firm Surveys to provide evidence on how U.S. start-up firms finance their assets, we find that about 25% of firms report 100% equity financing of their initial assets. For the remaining 75% of start-ups, we analyze their sources of credit, which we separate into three groups—trade credit, personal credit, and business credit. At start-up, we find that the majority of firms (55%) rely upon personal credit, but that a sizable fraction of firms also use business credit (44%) and trade credit (24%). As firms develop, they decrease the use of personal credit and increase the use of business credit. In addition, we examine which firm and owner characteristics explain a start-up’s decisions to use credit and, conditional upon using credit, what types to use. We find that firms are more likely to use credit at start-up when they are larger, more profitable, more liquid, have more tangible assets; and when their primary owner has more experience and more education. Black-owned firms are significantly less likely to use credit at start-up. Among firms that use credit, we find that larger firms are more likely to use trade and business credit and but less likely to use personal credit; firms with more current and tangible assets are more likely to use both trade and business credit but are less likely to use personal credit; firms with better credit scores are more likely to use business credit; corporations are more likely to use both trade and business credit but are less likely to use personal credit; firms with several owners are more likely to use business credit but are less likely to use personal credit; owners with more prior business start-ups are less likely to use personal credit; and female owners are more likely to use personal credit.2013 World Finance Conference, CYPRUS; 07/2013