Business, Management and Accounting
4 years ago

Trade credit boosts profits for small businesses, eases financial distress.

European Journal of Finance
The financial and operational impacts of European SMEs’ use of trade credit as a substitute for bank credit
Xiaodong Wang, Liang Han, Xing Huang, Biao Mi

Paper Summary

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Trade credit can help small businesses in Europe improve their financial performance and avoid operational problems. By looking at data from over 74,000 small businesses in 19 EU countries from 2006 to 2015, researchers found that providing trade credit can boost profits for small businesses. This is especially helpful for businesses that struggle to get bank loans. On the other hand, receiving trade credit can help small businesses facing financial difficulties, like not being able to get bank loans. However, if businesses take too long to pay back their trade credit, it may not help them as much.