Late payment and credit management in the small firm sector: some empirical evidence

Peel, Michael John ORCID: https://orcid.org/0000-0002-7444-390X, Wilson, Nicholas and Howorth, Carole 2000. Late payment and credit management in the small firm sector: some empirical evidence. International Small Business Journal 2 (18) , pp. 17-37. 10.1177/0266242600182001

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Abstract

Based on the results of a qtuestionnlaire survey, this paper provides some new evidence relating to late payment and credit and working capital m-ianiagenment practices of a sample of 211 small businesses operating in the United Kingdom manufacturing sector. Small firnms are often suppliers of trade credit, despite the difficulties that this often causes them, and there is little empirical evidence on the credit granting decisions of smiall firnms. Theory suggests that firms facing a higher cost of institutional credit (i.e. small firms) are less likely to offer trade credit. Empirical evidence suggests that not only do small firms provide trade credit to their customers but they often finid themselves providing extended trade credit (i.e. are paid after the due dlate( late). It is clear that exten-dedI tu ade ((re(lit plays anl important signallinig' rol(e t'0o smaller- firms wishing to gaini sales anlt establish reputationi. This paper examtillIc. the extent of late payntient 1or stniall suippliers and the cit-t-ent pt acti(es ill tr-ade credit managenmenit. The kex restilts indicate that thei-e was large suppor t amiong respondenits for the cut rrent I JK legislation giving small firms the statuittot J right to initerest orn late payments, xvitlt such legislation being rated tlhe illost popular measuire to reduce late pax'lntelltt and also the highest rated factot- associated wtih improving busilless performance. Inproved credit attd financial management was, however, rated of relatively low import in this respect. In total, 59.5 pet cenit, of respondents stated that late paimet-tt posed an important or very iml1portall-it problem to their- businesses, wvitih 43. 1 pct l cent Oiving a similar resp)ttsi ts c espC of bad debts. 89 per cent indicated that they paid their own suppliers late to a greater or lesser extent. The amount of working capital management undertaken was found to be related to the severity of the problem for individual firms (i.e. necessity was driving action). Responses from the sample firms were found to differ significantly with respect to firm size; larger small firms had a worse late payment problem and consequently had to do more in the way of 'back-end' credit management (i.e. collection, analysis of late payment and debtor days). However, there was barely any support for credit management training among this sub-group. The smaller (micro) firms had a lesser late payment problem and subsequently did less 'back-end' credit management but were more concerned with various aspects of institutional finance. It was posited that the problems faced by small firms are at least partly associated with business size and with the life cycle of the firm.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Subjects:	H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
Publisher:	SAGE Publications
Last Modified:	25 Oct 2022 08:22
URI:	https://orca.cardiff.ac.uk/id/eprint/52586

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