Role of Financial and Other Information in Trade Credit Decisions in SMEs - An International Study

Sep 2, 2026

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Trade credit serves as a key financing channel for SMEs, and the study examines how financial statements and other information shape trade credit decisions for smaller firms across Finland, the UK, the USA and South Africa. It strengthens the literature by addressing information needs of unincorporated entities for cross-comparisons with small, unlisted companies. Data were collected through in-depth semi-structured interviews with owner-managers, credit rating agencies and credit insurers. Findings highlight country and development differences and identify three main influences on decisions: formal/report-based information, soft information linked to social capital, and contingency factors that determine the balance between hard and soft inputs.

LanguageEnglish

CategoryGeneral

FormatDOCX

Pages33

Reading Time12 min

AccessFree to download

Introduction

Finance gap and access to finance for SMEs

Users of financial accounts and lender focus

Regulation burden and financial reporting exemptions

Policy context in the EU and selected countries

Role of financial and other information in trade credit decisions in SMEs: An international study Jill Collis, Robin Jarvis, Mike Page, Hannu Ojala, Andrew Holt, Olawale Fatoki and Adewale Aregbeshola ___________________________________________________________________________ Abstract Trade credit is an important source of finance for SMEs and this study investigates the use of the financial statements and other information in making trade credit decisions in smaller entities in Finland, the UK, USA and South Africa. The study adds to the literature by examining the information needs of unincorporated entities as a basis for making comparisons with small, unlisted companies. In-depth, semi-structured interviews in each country were used to collect data from the owner-managers of SMEs and from credit rating agencies and credit insurers. The findings provide insights into similarities and differences between countries and between developed and developing economies. The evidence suggests that there are three main influences on the trade credit decision: formal and report-based information, soft information relating to social capital and contingency factors. The latter dictate the extent to which hard/formal information versus soft/informal information is used. Key words: Access to finance, financial management, financial reporting, SMEs, trade credit Contact author: Dr Jill Collis Director, Accounting and Auditing Research Centre Brunel University Email: jill.collis@brunel.ac.uk 1. Introduction This study investigates the value of the financial statements of small and medium-sized enterprises to trade creditors and trade credit intermediaries, including credit rating agencies and credit insurers. The research focuses on small and medium-sized unincorporated and incorporated enterprises, referred to here as SMEs. The study is set in the context of the increased internationalisation of smaller firms and growing international convergence of financial reporting requirements. The economic importance of SMEs, especially in developing economies, has been widely documented. Not only do SMEs provide an increasing share of turnover in the private section in most economies, but many jurisdictions regard them as vital sources of innovation, growth and new jobs. As discussed in the individual country chapters, definitions of ‘small’ and ‘medium’ vary from place to place. Since SMEs make a significant contribution to all economies, however, definitional issues are of minor importance. Against this background, many governments have developed favourable policies towards SMEs in order to lower barriers to their development. Two areas, in particular, have been singled out for attention – access to finance and financial reporting. Many studies have identified a ‘finance gap’ where SMEs find it hard to obtain finance at the start-up stage and beyond. Although various initiatives and incentives have been used to encourage financiers to invest in equity and to lend to SMEs, generally the take-up levels have been disappointing. It is hard for lenders to overcome the high costs of assessing and monitoring SME investments in comparison with lending for property purchases, for example. Existing and potential investors, lenders and creditors are widely considered to be the primary users of published accounts (IFRS 2010). Investors in large companies are generally external shareholders who delegate authority for managing the business to the directors. By contrast, investors in most small and medium-sized private companies are owner-managers (Page 1984; Carsberg et al. 1985; Collis 2003 and 2008). Although there is some literature on the users of the financial statements of small and medium-sized companies, the main focus is on lenders, and little is known about the information needs of suppliers, other trade creditors or third parties, such as credit rating agencies and credit insurers. Moreover, the use of the financial statements produced by unincorpor

FAQs

What does the study investigate about trade credit decisions for SMEs?

It examines how financial statements and other information are used to make trade credit decisions for smaller entities in multiple countries.

How were the study’s data collected?

The study used in-depth, semi-structured interviews in each country with SME owner-managers, credit rating agencies and credit insurers.

What factors influence trade credit decisions according to the findings?

Three main influences are identified: formal and report-based information, soft information related to social capital, and contingency factors that affect whether hard/formal or soft/informal information is used.

Sep 2, 2026

Upload by Ezra