Original article Financial Economics

TRADE CREDIT AND RISK OF INSOLVENCY

Galya Taseva - Economic Research Institute аt BAS
Received: 10 Jun 2022
Revised:
Published:
Downloads: 0
Citations: 0
Issue 4/2015
JEL G30 G32 G33 G39
DOI https://doi.org/10.56497/etj1560404

Abstract

The article analyzes the relation between the use of trade credit and risk of insolvency of nonfinancial enterprises in Bulgaria. Data from empirical sociological examination among 201 nonfinancial enterprises are used. The results confirm the financial distress theory of trade credit. It was found out that firms that are financially constraint use more credits from suppliers and financially stable firms are prone to wait longer before taking measures in case of payments delay from clients. It is also found that postponed account receivables create serious liquidity problems for enterprises and difficulties in paying basic expenses for their activity. One of the conclusions from the investigation is that for a number firms, trade credit is a source of financing from last resort, because difficulties in paying to suppliers and problems with delayed account receivables are indicators of insolvency risk of firms.

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