Financial supply chain management and trade credit: A descriptive research on trade credit in Finland between 2006 and 2016

Abstract

The purpose of this research is to increase understanding of the basic principles of financial supply chain management and trade credit by producing a descriptive research on the use of trade credit in Finland. Trade credit is considered a significant source or short-term financing and it is a common component of financial transactions between companies. Trade credit has traditionally been studied from a single-company perspective, but it has received growing attention in the field of operations and supply chain management, as the need to increase understanding of trade credit from a supply chain perspective has been identified.

From a methodological standpoint, this research assumes a positivist approach, as the objective is to find generalizable knowledge through causal explanation of occurrences between observable phenomena. Data used in this quantitative research is based on the survey data that has been collected for the Finland State of Logistics Surveys during the years 2006-2016. The research provides a macro-level view of trade credit, as the sample data is presented in a descriptive manner and has been categorized by the determinants to compare the trade credit variables. The research conducted in this thesis provides also further information regarding the use of trade credit in different supply chain tiers, by providing an analysis of the distributions and answering the research question on what the differences and similarities in the use of trade credit in different supply chain tiers are. The results suggest that companies in the downstream of the supply chain were able to operate with shorter days-sales-outstanding periods on average.

The results also indicate that when companies extend trade credit to their customers, they also demand extensions from their suppliers in their effort to balance their trade receivables and trade payables. In addition, the results of this research imply that the level of international sales and purchases is a determinant for the use of trade credit, as companies with a larger share of international sales have on average longer days-sales-outstanding periods. The same effect is present when the share of international purchases and the average dayssales-payables length are compared, as for companies with a higher share of international purchases the average days-sales-payables length was also longer.