A Close Look Into Supplier Policy Changes in Response to Their Buyers’ Financial Stress

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Abstract

Trade credit, the credit extended to buyers by suppliers who let them buy now and pay later, is an important financing method for many buyers. Any policy change by buyers in accounts payable, a measure for trade credit, results in appreciation or frustration on the supplier side. Even though, such effects have been well documented in the literature, an empirical study on the subject is surprisingly lacking. As an example, a certain buyer might change the payment policy by extending or shortening the periods of the payments. We investigate how and if the payment policy change of the buyer affects the supplier’s operations, especially on the perspective of inventory of suppliers. This study further investigates how changes in a firm’s accounts payable days and accounts receivable days affect its inventory turnover days.

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