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Trade credit demand used as a competitive strategy


This part-series article discusses trade credit demand. Having examined the motives for it and established the different factors that influence credit decisions, the author now explores ways in which trade credit demand decisions and the information derived from them can be used to improve companies' liquidity, profitability and competitiveness. Internal organization, economic conditions, the industry sector, firm size and the environment in which the business operates all have an influence on the demand for credit. There are five determinants of trade credit demand. These are: 1. financing and strategic issues, 2. transaction costs and strategic issues, 3. firms' operating environment and strategic issues, 4. specific investments and strategic issues, and 5. asymmetric information and strategic issues. To conclude, trade credit demand is an important cheap source of finance readily available if buyers 'play their cards right'.

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