Trade credit management represents an important strategic opportunity for firms to enhance performance, liquidity and profitability. This paper synthesises existing understandings of trade credit, with particular (but not exclusive) reference to the UK, with a view to identifying a research agenda in this field. The size, macroeconomic significance, absence of regulation and presence of significant internal risk associated with trade credit suggest that such an enhanced meta-level understanding of this substantial financial market that shadows regular business-to-business operations is imperative. The paper synthesises what is known about the basic parameters of trade credit operations, suppliers' motivations and imperatives for granting credit to trade customers and the factors that determine credit periods and terms. We identify where further research would advance understanding in this area.

Since 1988, cash holding of the UK companies has increased from 10.6% to 16.4% of total assets. To explain this increase, we develop a panel vector autoregression and analyse the dynamics between cash holding and its closest substitutes, trade credit and short-term bank finance. Impulse response functions confirm the signalling theory, as trade credit facilitates access to bank finance. Firms experiencing liquidity shocks resort to cash or trade credit but not to bank finance. Cash holding improves access to trade credit. Additional cash and trade credit trigger a slowdown of the cash conversion cycle explained by agency theory. Cash-rich firms have accumulated more cash than predicted because of an unexpected decline in short-term debt, stressing the role of banks in explaining the increase in cash holding.

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Purpose-The supply of trade credit by small-to medium-sized enterprises (SMEs) is the product of both customer demand and the possibility of strategic advantage, but is subject to risk. In the current financial climate the demand for trade credit may be heightened, leading to further increased risk. This paper seeks to evaluate current risk mitigation measures in the UK and considers how these might be improved. Design/methodology/approach-The supply of and demand for trade credit and the inherent risks are explained by reference to the literature. Then, using both the academic and grey literature and data from a large-scale questionnaire, the paper highlights the limitations of both regulatory and management approaches to mitigate the risks in the context of UK SMEs. Finally, the paper considers the prospects for improved management. Findings-Trade credit may be a product of market demand or a desire to extract strategic advantage. Both regulatory measures and internal management regimes have failed to mitigate risks in the UK for SMEs extending trade credit. Practical implications-The paper concludes that current UK regulatory regimes are unlikely to prove effective and that better management of trade credit may be imperilled by the power imbalances between SMEs and larger firms. The paper suggests areas for the improvement of trade credit management under the headings of policies, people, processes and practices within SMEs. Originality/value-The paper demonstrates why, despite the risk, UK SMEs offer trade credit and consider how those risks might be mitigated.

The purpose of this paper is to investigate the factors that influence Malaysian manufacturing sector investment in accounts receivable, an asset seen by many as one of the riskiest in any company's balance sheet. We test several theories, related to accounts receivable, using a cross-section of 262 listed manufacturing firms over a period of five years (2007)(2008)(2009)(2010)(2011). Both fixed and random effect approaches are considered to deal with potential heterogeneity across firms. Our results show that the absolute level of accounts receivable is almost exclusively explained by size. However, the ratio of accounts receivable to assets is influenced by firm size, short-term finance, sales growth, and collateral. Profit, liquidity and gross margin have no role in affecting the decision to grant trade credit to customers. Some of our results are mostly inconsistent with previous studies. Size and short-term finance have a negative, rather than a positive, impact. Liquidity and gross margin have no, rather than a positive, effect. Profit and sales growth are expected to exhibit a U-shaped relationship with investment in accounts receivable. We found, however, that the former is insignificant while the latter is strictly increasing. The only factor found to be consistent with prior studies, in developed counties, is collateral. Our findings have important implications for policy makers in Malaysia and other emerging economies, especially in the light of the forthcoming International Financial Reporting Standard 9.3