Accounts Receivable Management Policy: Theory and Evidence

The Journal of Finance (Impact Factor: 4.22). 02/1992; 47(1):169-200. DOI: 10.1111/j.1540-6261.1992.tb03982.x
Source: RePEc


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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    • "A la hora de explicar el crédito comercial, algunos estudios han conectado el efecto de la situación económica sobre el uso del mismo (Schwartz, 1974). Tradicionalmente, estos trabajos han analizado el crédito comercial en un contexto de expansión económica (Meltzer, 1960;Herbst, 1974;Mian y Smith, 1992). En este sentido, en épocas de bonanza económica se espera que las empresas, especialmente las pymes, hagan más uso del crédito comercial recibido y concedido. "
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    ABSTRACT: Este trabajo estudia los efectos de la situación económica sobre el crédito comercial en las pequeñas y medianas empresas. Para lograr este objetivo, se analiza una muestra de pymes españolas durante los años 2004 a 2011, periodo que incluye una etapa de expansión y otra de recesión, utilizando la metodología de datos de panel. Los resultados muestran que el ciclo económico afecta de manera significativa al crédito comercial recibido y concedido, produciéndose un aumento en la etapa de bonanza económica y una contracción durante la crisis. Además, son las empresas más vulnerables financieramente las que durante la crisis, por un lado, tienen más dificultades para conseguir financiación vía crédito comercial, pero al mismo tiempo más incrementan su crédito a clientes. Por último, aquellas firmas con mayor capacidad de generar recursos conceden más crédito a sus clientes.
    Full-text · Article · Dec 2015 · Investigaciones Europeas de Direccion y Economia de la Empresa
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    • "Recent estimates suggest that around 80–90 percent of the world trade is facilitated by trade credit (Williams, 2008). In the manufacturing sector, accounts receivable make up 20–25 percent of the total assets of firms (Fewings, 1992; Mian & Smith, 1992). "
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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.
    Full-text · Article · May 2015 · European Journal of Operational Research
    • "Larger firms are thought to be better known and have better access to capital markets than smaller firms, in terms of availability and cost, and should therefore face fewer constraints when raising capital to finance their investments (Faulkender and Wang, 2006). Hence, the financial motive predicts a positive connection between extending trade credit and firm size (Mian and Smith, 1992; Petersen and Rajan, 1997; Schwartz, 1974). "
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    ABSTRACT: Financial literature discusses the motives for trade credit provision by suppliers in depth. However, there is no empirical evidence of the effect of granting trade credit on the profitability of small and medium-sized firms. We examine the profitability implications of providing financing to customers for a sample of 11,337 Spanish manufacturing SMEs during the 2000–2007 period. This article also examines the differences in the profitability of trade credit according to financial, operational, and commercial motives. The findings suggest that managers can improve firm profitability by increasing their investment in receivables and that the effect is greater for financially unconstrained firms (larger and more liquid firms), for firms with volatile demand, and for firms with bigger market shares.
    No preview · Article · Mar 2014 · Small Business Economics
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