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This study investigates the substitution financing effect of suppliers’ trade credit on customers’ trade-credit using Chinese listed firms from 2009 to 2018. Results verify the substitution financing effect of suppliers’ trade credit on customers’ trade credit, indicating that firms with higher suppliers’ trade credit have lower customers’ trade credit. Moreover, suppliers’ trade-credit substitutes customers’ trade credit by alleviating financing constraints. Customer concentration weakens the substitution financing relation. Finally, the substitution financing effect of customers’ trade credit on bank credit is more pronounced than that of suppliers’ trade credit. As exogenous policy shock, the capital market liberalization has no significant impact on the substitution financing relation between heterogeneous trade credits. This study reveals that trade credit is heterogeneous rather than homogeneous. The substitution financing effect also exists in trade credit inside, which expands the existing literature’s understanding of trade credit and the substitution financing theory’s connotation.

The manufacturer who is a supplier of trade credit may face non-payment risk from customers and a capital shortage problem simultaneously. Trade credit insurance, as one of the most important risk management tools, has been widely used in companies’ daily operation. In this study, the manufacturer who allows customers to delay payment for goods already delivered purchases trade credit insurance to transfer and reduce non-payment risk and borrows money from a bank to accommodate the capital constraint problem. The Stackelberg game and loss-averse theory are used to establish a newsboy model including trade credit insurance, and the optimal insurance coverage and total sales of the manufacturer are thereby investigated. Subsequently, the interest rate decision of the bank under different risk-averse situations is also characterized. We find that the interest rate set by a loss-averse bank is equal to or greater than that given by a risk-neutral bank. The use of trade credit insurance can help the manufacturer expand sales and dramatically reduce its default risk. Both the bank and the manufacturer are better off due to the use of trade credit insurance, but contrary to what one might expect, the bank prefers giving a higher interest rate to the manufacturer when the premium rate is in a reasonable region, which indicates that the manufacturer cannot use the insurance to negotiate better financing terms.

While receiving trade credit from their suppliers, many retailers are willing to provide trade credit to their customers for certain fashion goods and electronic products. Usually, customers’ delay payment term is longer than the retailer’s, which is ignored in the existing literature. In this paper, we study such deteriorating-items supply chain where the supplier offers flexible two-part trade credit allowing the retailer to pay part of purchase cost at early-payment term with discount and the rest with no discount at later-payment period; meanwhile, the retailer provides one-part trade credit allowing the customers to delay payment. We discuss the retailer’s optimal replenishment and payment decisions where downstream credit periods are not limited to less than upstream early-payment terms. Numerical examples and sensitivity analysis serve to verify theoretical results and support three critical managerial insights. First, the retailer can extend downstream delay payment terms to profit, especially for the young generation’s products. Second, when the downstream credit period is longer than the upstream early-payment term, it makes economic sense for the retailer to order items more frequently. Finally, the retailer would take more benefits from flexible two-part trade credit contracts on longer shelf-time products.

This paper investigates the influence of firm-level political risk on the firm’s supply of trade credit. Using a novel measure of firm-level political risk developed by Hassan et al. ( 2019 ), we find that firm-level political risk has a positive impact on the firm’s trade credit extension. We also demonstrate that our results are not driven by macro financial and political events, firm-level political sentiment and non-political risks, and macro-level economic and political factors. Our result continues to hold after addressing the potential endogeneity concern. Additionally, we find that the positive impact of political risk on trade credit extension is more pronounced for firms selling differentiated goods and services. Furthermore, we demonstrate that extending trade credit enhances firm value when a firm faces higher political risk. This paper highlights the importance of considering firm-level heterogeneity in political risk. It also contributes to the literature on the determinants of trade credit extension and deepens our understanding of the relationship between political risk, trade credit, and corporate performance.

This study examines the impact of environmental, social, and governance (ESG) performance on corporate performance in China’s manufacturing sector, incorporating trade credit financing as a mediator and environmental information disclosure quality as a moderator. Using unbalanced panel data from Chinese A-share listed manufacturing firms between 2011 and 2023 and employing two-way fixed effects models, we provide robust empirical evidence that superior ESG performance directly enhances corporate performance by reducing information asymmetry, strengthening corporate reputation, and lowering capital costs. Furthermore, we identify a key mediating mechanism: strong ESG practices improve access to trade credit financing—an efficient non-bank funding alternative—which alleviates financing constraints, optimizes resource allocation, and amplifies operational and financial outcomes. In a notable departure from conventional expectations, we find that high-quality information disclosure negatively moderates these relationships. Excessive disclosure induces signal overload and adverse selection, raising financing costs and external scrutiny that ultimately diminish the marginal benefits of ESG investments. Cross-sectional analyses reveal that these effects are particularly pronounced in non-state-owned enterprises, non-heavy-polluting industries, and firms located in eastern regions, highlighting the contextual boundaries of ESG efficacy. Our contributions are twofold: we theoretically advance the ESG-finance literature by unveiling trade credit as a transmission channel and revealing the unintended consequences of disclosure overload, and we offer practical guidance for firms seeking to optimize ESG disclosure strategies and for policymakers aiming to design targeted sustainable transition policies.

Judicial efficiency has been widely identified as a factor that has an impact on credit markets and firms’ financial decisions. In this paper, we study the relationship between judicial efficiency and trade credit granted by firms to their customers, as well as how the judicial system influences the proportion of those credits that are deemed ‘doubtful’. We test our assumption by analysing a sample of 1526 listed, ‘non-financial’ firms located in countries in the eurozone, during the period 2011–2021. The proxies of judicial efficiency are the length of judicial proceedings and rule of law, obtained from the World Bank’s ‘Doing Business’ and the World Bank Governance Indicators (WGI) databases, respectively. The empirical findings confirm our hypotheses that efficient justice allows for increased supplier confidence when extending financing to their customers and reduces doubtful trade credit.

Purpose The purpose of this paper is to examine the determinants and motives for supply of trade credit among agro-food manufacturing firms in African countries. Design/methodology/approach The paper uses a subsample of food manufacturing firms from World Bank Enterprise Survey in eight African countries in 2014. Two-limit Tobit models are specified for the determinants of trade credit supply (TCS) and the motives for TCS are inferred from the determinants. An instrumental variable two-limit Tobit model is estimated to check the endogeneity of trade credit received (TCR) in relation to trade credit supplied. Findings The level of TCS is significantly related with degree of product diversification, manager experience, level of TCR and overdraft availability. From the results, financing motives (particularly liquidity and redistribution) and commercial motives (particularly marketing and quality guarantee motives) for TCS are implied. Research limitations/implications The parameter estimates may contain both demand and supply effects as the two effects cannot be separated due to absence of information on firms’ customers in the data set. The results should be interpreted in this context. Originality/value The motives for TCS by agro-food firms is less understood in the agricultural finance literature and this paper makes an important contribution in this regard. In particular, the paper shows the degree of product diversification is directly associated with TCS, a relationship which has not been explored in the trade credit literature.

This paper examines the role of trade credit insurance in a supply chain consisting of a capital-constrained supplier and a capital-constrained retailer. The retailer faces stochastic market demand and seeks trade credit from the supplier. The supplier, who is the Stackelberg game leader, decides the production quantity and the insurance coverage rate. We find that when the supplier’s initial capital is not sufficient, the use of trade credit insurance may reduce the trade quantity and the expected profit of the retailer. However, when the initial capital of the supplier is sufficient, the use of trade credit insurance will always increase the trade quantity. In the extension, we assume the supplier will face a potential financing cost if the net income is lower than the threshold. We find that if the insurance company has to keep its expected return positive and has no way to invest the insurance premium, the supplier will never buy the trade credit insurance no matter how much the marginal financing cost is when threshold is outside a certain range. Both the results and the methods in this paper can help businesses achieve a balance of funds and the logistics of the supply chain and risks, thereby improving the effectiveness of the supply chain operation.

Trade-credit is an influential implementation in financial transactions. This paper proposes an inventory model for decaying items with lifetime under linked-to-order partial delay in payments. More precisely, the items are gradually deteriorating and also have a known maximum lifetime. The payment scheme is structured as follows: if the order quantity reaches a particular level, fully permissible trade credit is possible, otherwise the partial trade credit is offered. To the best of our knowledge, this is the first research incorporating the “Linked-to-order Trade Credit Financing” scheme for deteriorating items with lifetime. Selling price and purchasing costs are not considered equal and there is no need for the interest charged in stocks to be larger than the interest earned on investment. Theoretical results are developed to obtain the optimum solutions of the problem. The authenticity and pertinence of the model and solution procedure are illustrated through numerical results. Finally, sensitivity analysis and managerial insights are provided.

In practice, to promote sales and alleviate the default risk of customers, the retailer frequently offers its good credit customers full trade credit while offers bad credit customers partial trade credit. In other words, both types of customers receive a credit period simultaneously, but the bad credit customers must pay a fraction of the purchase cost at the time of buying productions as a collateral deposit. By contrast, for the sake of self-interest, the supplier chooses to provide the partial trade credit for its retailer on account of reducing the credit risk. Numerous researchers assume that the retailer has the powerful decision-making right and he/she can obtain the full trade credit, however, very few academicians have studied that the supplier offers the retailer partial trade credit, which is more realistic and significant. In this paper, we establish an economic order quantity model for a retailer who receives a partial trade credit by its supplier, and offers a full or partial trade credit to its good or bad credit customers respectively based on the cost minimization of the retailer. Then, the optimal ordering strategy of the retailer under different conditions is given. Finally, through numerical examples and sensitivity analysis, we derive the influence of related parameters on retailer’s order decision and managerial insights.