Accounts Receivable Management and the Factoring Option: Evidence from a Bank-Based Economy

22 Pages Posted: 4 Sep 2012 Last revised: 28 Nov 2012

See all articles by Thomas Hartmann-Wendels

Thomas Hartmann-Wendels

University of Cologne - Department of Banking

Alwin Stöter

University of Cologne - Department of Banking

Date Written: September 18, 2012

Abstract

In this paper we analyze how firms that extend trade credit finance and operate the generated accounts receivable. Firms decide whether to internally manage the trade credit, use full-service factoring or enter into an inhouse factoring contract. Our model is mainly based on a theory of the firm that stresses the need for financing, the supplier's risk and the financial flexibility. We find that high risk firms with a strong need for short term financing and restricted access to bank credit enter into a market transaction such as a full-service or inhouse factoring contract. Larger firms tend to manage the accounting and debt collection of the accounts receivable on their own and thus prefer inhouse factoring whereas small firms rely on full-service factoring. Financial diversification in terms of independence from banks plays an important role for the decision to employ a factor.

Keywords: factoring, accounts receivable, trade credit

JEL Classification: G32, G29

Suggested Citation

Hartmann-Wendels, Thomas and Stöter, Alwin, Accounts Receivable Management and the Factoring Option: Evidence from a Bank-Based Economy (September 18, 2012). Available at SSRN: https://ssrn.com/abstract=2140870 or http://dx.doi.org/10.2139/ssrn.2140870

Thomas Hartmann-Wendels

University of Cologne - Department of Banking ( email )

Albertus-Magnus-Platz
D-50923 Cologne
Germany

Alwin Stöter (Contact Author)

University of Cologne - Department of Banking ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

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