A transactions theory of trade credit use
Abstract
This paper derives a transactions theory of trade credit use from the motives of trading partners to economize on the joint costs of exchange. In the formal analysis, uncertain delivery time is used to generate a demand by firms to hold inventories of both goods and money. Trade credit is viewed as a mechanism that separates the exchange of money from the uncertainty present in the exchange of goods. By forewarning both trading partners of the timing of money flows, credit permits a reduction in precautionary money holdings and the more effective management of net money accumulations.
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Although relatively expensive, a small amount of trade credit may be optimal from the viewpoint of transactions costs, liquidity, and cash management and may help give the borrowing firm and supplier information that helps predict cash flows.
“Although relatively expensive, a small amount of trade credit may be optimal from the viewpoint of transactions costs, liquidity, and cash management and may help give the borrowing ®rm and supplier information that helps predict cash ¯ows (Ferris, 1981).”
From The economics of small business finance: The roles of private equity and debt markets in the financial growth cycle (1998) · cites this paper as Ferris, 1981
According to Ferris (1981), the Transaction Cost Theory states that good payables management can reduce the transaction costs of paying bills by accumulating bills and making scheduled payments for all of them, as opposed to piecemeal payments, which increase the organization's costs.
“According to Ferris (1981), the Transaction Cost Theory states that good payables management can reduce the transaction costs of paying bills by accumulating bills and making scheduled payments for all of them, as opposed to piecemeal payments, which increase the organization's costs.”
From The Effects of Working Capital Management on the Financial Performance of Commercial and Service Firms Listed on the Nairobi Securities Exchange in Kenya (2024) · cites this paper as Ferris (1981)
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- Authors
- Ferris, J. S.
- Affiliations
- Carleton University (CA)
- Corresponding author
- Ferris, J. Stephen
- ORCID
- Ferris, J. Stephen
- Venue
- The Quarterly Journal of Economics
- Publisher
- Oxford University Press (OUP)
- Published
- 1981-05
- Volume
- 96
- Issue
- 2
- Pages
- 243
- ISSN
- 0033-5533 (ISSN-L)
- OpenAlex
- W2013704297
- Cited by
- 603
- References
- 16
- Citations by year
- 2026: 15 · 2025: 32 · 2024: 31 · 2023: 40 · 2022: 33 · 2021: 28 · 2020: 27 · 2019: 35 · 2018: 38 · 2017: 31 · 2016: 25 · 2015: 26 · 2014: 30 · 2013: 26 · 2012: 22
- FWCI
- 2.98
- Type
- journal article
- Language
- en
- Open access
- closed
- Locations
- The Quarterly Journal of Economics (publishedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- Topics
- Social Sciences › Business, Management and Accounting › Accounting › Working Capital and Financial Performance
- Social Sciences › Business, Management and Accounting › Management Information Systems › Supply Chain and Inventory Management
- Social Sciences › Economics, Econometrics and Finance › Finance › Banking stability, regulation, efficiency
- Keywords
- trade credit, inventory holding, exchange costs, financial flows
About these checks
Registry, retraction, Cites and statistics results are computed, not judged, with one exception: a printed reference that no index lists is read once by a model before it counts as a citation error. Claims are extracted by a model and kept only when their quote appears verbatim in the text; each cited source is then checked, with a model’s help, for whether it says what the claim relies on. Those verdicts can be wrong — read the claim’s quote and the cited source before relying on one.
Statistics and arithmetic are recomputed, not judged.
Confidence bands are shown only for fields calibrated on our annotated test set. None is calibrated yet, so no band is shown.
What counts as a claim ›How we measure confidence ›How we check this ›
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