Doctor of finance banking thesis summary research on factors affecting trade credit of vietnamese enterprises

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INTRODUCTION

 Research on the impact of trade credit on the enterprises’ performance
- The impact of trade payables on business performance
Most of the analyses suggest that trade payables have a positive effect on the firm's
performance, i.e., appropriating capital for as long as possible, as long as it does not affect a firm's
credit rating (Lazaridis and Tryfonidis, 2006; Gul et al., 2013; Makori and Jagongo, 2013; Ukaegbu,
2014). However, no studies point out that the trade payables have a negative impact on firm's
performance. There are analyses confirm that business performance negatively affects the enterprise's
accounts payable. To explain this, the studies suggested that when operating efficiency decreases,
profitability is low, so prolonging payment terms for suppliers, leading to increased payables. These
studies can be mentioned as Deloof (2003), Padachi (2006), Akinlo (2011), Sharma and Kumar
(2011), Mansoori and Muhammad (2012), Vahid et al. (2012). Additionally, pieces of
research find no association between these two variables such as Garcıa-Teruel and Solano (2007),
Gill et al. (2010).
Thus, the research scope of the topic will not analyze the effect of payables on business
performance. Since previous studies, all show that the payables have a positive impact on firm
performance thanks to its low cost of capital. It means that occupying payables increases firm’s
profitability consequently helps to enhance operational efficiency.
- The impact of customer receivables on business performance
There are two schools of thought in analyzing the influence of customer receivables on
business performance. The first stream proves that the customers receivable have a beneficial
impact on the business’s operational efficiency, i.e. the longer days of collection is, the higher
the profit margin is, thereby enhance the firm’s operational efficiency. Such studies can be
mentioned as Akinlo (2011), Sharma and Kumar (2011). On the contrary, most other studies have
suggested that increasing the number of days to collect money from consumers will make profits
decrease, at the same time business efficiency will reduce. This means that the number of days of sales

is inversely related to profitability. These studies include Deloof (2003), Lazaridis and Tryfonidis
(2006), Padachi (2006), Garcıa-Teruel and Solano (2007), Gill et al. (2010), Mansoori and Muhammad,
(2012), Vahid et al. (2012), Gul et al. (2013), Makori and Jagongo (2013), Ukaegbu (2014). There is
only one study by Martínez-Sola et al. (2012) showed that a nonlinear relationship exists between
customer accounts receivable and firm value. Accordingly, when accounts receivable are kept below
the optimum amount of receivables, the benefits of trade credit will prevail, and an increase in
receivables will result in a rise in corporate value. Conversely, when the receivable is held higher
than the optimal receivable, it will reduce firm value.
3. Research gap
Currently there are no studies in Vietnam that comprehensively consider the internal
factors affecting Vietnamese listed firms’ trade credit in general and by industry sector
specifically. In addition, the provision for bad debts might affect customer receivables that has
not been tested by any study. Besides, the general concern accepted that the business's
operational goal is to maximize the value of assets for the owners. To achieve the goal,
companies must improve their operational efficiency. Hence, businesses need to know how
trade credit affects operational efficiency to adjust the factors affecting trade credit to improve
operational efficiency. Therefore, it is necessary to have a study to examine the factors affecting trade
credit and analyze the impact of customer receivables on the performance of listed companies. At the
same time, it discovers the optimal level of customer receivables for Vietnamese listed companies in

1. The necessity of research
In the current economy, in order to facilitate the business process, the companies often let
customers buy goods with deferred payment for a certain period. This has nearly become the
market’s law. Businesses selling products will offer trade credit to customers firms purchasing
goods will obtain trade credit from the seller, respectively.
However, the granting or receiving of trade credit will depend on various subjective and
objective factors. This issue has also received the researchers’ attention around the world such
as Petersen and Rajan (1997), Niskanen and Niskanen (2006), Bougheas et al. (2009), GarcíaTeruel and Martínez-Solano (2010a), etc. Nevertheless, the research’s findings are controversial
as the factors affecting trade credit vary significantly between countries and industries.
In addition, as we already know, companies granting trade credit to customers will be able

to speed up sales, reduce inventory, and increase revenue. At the same time, buyers who are
offered trade credit will have a source of goods for production and business without immediate
payment. However, maintaining a lot of receivables will not be healthy for companies. Since
companies will face credit risk when implementing the sell-on strategy, namely the risk of
losing money if customers don’t pay for the products when due. Meanwhile, trade credit
is mostly financed by short-term bank loans and offen used from payables that supplier’s capital is
occupied by the firms. Therefore, it would also costs if the company’s trade credit strategy is ineffectual.
So the question is how much trade receivable firms should allow their customers occupy is optimal to
maximine operational efficiency and firm value. From there, the factors affecting the trade credit will
be adjusted appropriately. As businesses give trade credit to consumers, the company is at a proactive
position, so it can determine the amount of money that might be employed by customers in a short time
space. The firm is in a passive role when it takes advantage of the supplier’s trade credit, so it cannot
decide on its own how much trade payable it hopes to obtain. These businesses should
only concern about what they can assist to benefit from the suppliers’ capital, but not reduce
the companies’ credit rating and credibility. Then, the enterprises can operate sustainably and enhance
performance efficiency.
Simultaneously, in the reality of Vietnam, trade credit is being used considerably by
companies in the business processes. Nevertheless, the factors influencing trade credit and the
impact of trade credit Vietnamese enterprises’ performance in general and by industry sectors in
particular has been not comprehensively studied. Afterward, the driving factors are adjusted
appropriately to maximize operating efficiency and firm value. Hence, the topic “Research on
factors affecting trade credit of Vietnamese enterprises” is selected as the research purpose.
2. Literature review
 Studies on factors affecting companies’ trade credit
Factors influencing trade credit include operational years, size, net cash flow, short-term
finance, short-term borrowing ratio, financial cost, sale growth, asset turnover, short-term asset
ratio, gross profit margin, inventory ratio, and liquidity (Nadiri, 1969; Long et al., 1993; Petersen
and Rajan, 1997; Ng et al., 1999; Danielson and Scott, 2004; Niskanen and Niskanen, 2006;
Bougheas et al., 2009; García-Teruel and Martínez-Solano, 2010a; Vaidya, 2011; Khan et al., 2012;
Phan Đinh Nguyen và Truong Thi Hong Nhung, 2014; Shi et al., 2016; Tran Ai Ket, 2017).

However, each study has various factors affecting trade credit whereas the degree and direction of
these factors are also distinct.


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general and Vietnamese listed industry groups in particular to maximize the business performance.
Currently, there are no studies in Vietnam and in the world that mention this issue. So, it can be
considered as a research gap.
4. Objectives of the study
- Thesis’s general objective: to examine factors affecting trade credit of Vietnamese firms.
This is the foundation on which propose recommendations to improve the trade credit
management of Vietnamese companies.
- To accomplish the general goal, the thesis offers the following specific objectives:
+ Complete theoretical analysis framework on trade credit of enterprises.
+ Analyze and assess the current situation of factors affecting trade credit of Vietnamese listed
companies in general and Vietnamese listed industry groups in particular.
+ Analyze and assess the current situation of the impact of trade credit on the performance
of Vietnamese listed companies in general and Vietnamese listed industry groups in particular.
+ Recommendations are proposed to improve the management of trade credit for
Vietnamese listed companies.
5. Research subjects and scope of the study
5.1. Research subjects
The subjects of study is the enterprise's trade credit.
The thesis only focuses on the subjective factors belonging to the business affecting trade credit, in
which trade credit is understood to be trade receivables (short-term) and trade payables.
When studying the impact of trade credit on the performance of Vietnamese listed
companies, the thesis only focuses on researching the impact of customer receivables on the

performance of Vietnamese listed enterprises.
5.2. Research scope
- Research space: Vietnamese non-financial companies listed on HNX and HOSE.
- Research period: the 2013-2017 period.
6. Research questions
- Research questions:
+ What factors affect the trade credit of businesses?
+ How is the situation of factors affecting trade credit of Vietnamese listed companies in
general and Vietnamese listed industry groups in particular?
+ Is there an optimal level of customer receivables at which the Vietnamese listed
companies have the highest performance? What is the ideal amount of account receivable of
Vietnamese listed companies in general and by industry sectors in particular?
- Management question: What are the recommendations to improve the trade credit
management in Vietnamese listed companies?
7. The contributions of the thesis
Firstly the study inherits and builds a model measuring the factors affecting trade credit
and add a new variable affecting trade credit, which is the provision for bad debts. Specifically,
an increase in the provision for bad debts causes costs to increase and profits to decrease,
resulting in a decrease in the market value of the stock (Cheng et al., 2009). Therefore, in order

not to reduce profits and stock value, listed businesses must increase revenue through
accelerating sales by loosening trade credit policies for customers, making receivables increased.
The second contribution is to identify factors that influencing the trade credit of
Vietnamese listed companies in general and industry groups in particular on both aspects, including
accounts receivable from customers and accounts payable to the seller. The factors impacting
on customer receivables of listed companies are provision for bad debts, net cash flow,
financial cost and inventory ratio. The factors affecting the trade payables of listed companies
are short-term loan ratio, net cash flow, ratio of short-term assets, inventory ratio,
liquidity and firm size. Moreover, it is noteworthy that the sale growth factor, unlike the
previous studies, has no effect on trade credit of Vietnamese listed companies in general and

industry groups in particular. Thus, the motivation that makes the accounts receivable changed
in Vietnam listed companies is not the increasing sales goal, but the more profound purpose
is to increase profits since profit is the core goal of each enterprise. If businesses only focus
on increasing sales but do not care about profits, it is very dangerous because the risks of not
being able to recover money are very large. In addition, whether Vietnamese listed companies
use capital from suppliers more or less will not depend on sales, but mainly on cash flow,
financial cost and the ratio of short-term loans.
The third contribution is to determine the impact of customer receivables on the
performance of Vietnamese listed companies in general and Vietnamese listed industry
groups in particular (infrastructure services industry, consumer services, consumer goods,
and basic materials) in an inverted U shape. It can be understood that in the initial increase
of customer receivables, the more receivables increase the more effective the business
is. To a certain level of receivables, the more receivables from customers make the business
performance decrease. The point at which corporate performance reverses is called optimal
customer receivables.
The fourth contribution is to determine the optimal customer receivables to maximize the
operational efficiency of Vietnamese listed companies in general and for each industry sector in
particular. Specifically, the optimal level of customer receivables over total assets of
Vietnamese listed companies is generally 25,07%; the infrastructure services industry is
15,10%, the consumer services industry is 17,42%; the consumer goods industry is 19,51% and
the basic materials industry is 17,50%.
The fifth contribution is a recommendation to businesses and the government to help
Vietnamese listed companies improve the efficiency of trade credit management. For businesses
acting as a trade credit providers, it is necessary to: (1) Pay attention to factors affecting customer
receivables and current versus optimal customer receivables to make appropriate adjustments, (2)
Establish an effective receivable management process. For businesses acting as trade credit users,
it is necessary to: (1) Strengthening the advantage of big business to use capital from suppliers,
(2) Use more trade credit when commercial bank interest rates rise, (3) Depending on the
characteristics of each business area, businesses can choose to use more trade credits, (4) When
businesses have difficulties in cash flow and liquidity, businesses should use trade credit, (5)

Calculate reasonable payment time to bring benefits to businesses. For the Government should:
(1) Build a strong the legal framework in trade credit relations, (2) Take control of macro issues
like inflation and interest rates, (3) Establish trade credit information center for businesses, (4)
Establish and facilitate the debt trading market.


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8. The structure of the thesis
Besides, the introduction, and conclusion, the thesis content includes 5 chapters: Chapter
1: Theoretical framework of trade credit and the factors affecting enterprises’ trade credit;
Chapter 2: Research method; Chapter 3: The current situation of trade credit of Vietnamese
enterprises; Chapter 4: Results of the test of factors affecting trade credit of Vietnamese
enterprises; Chapter 5: Research discussions and recommendations.

that there is a non-linear relationship between customer receivables and firm value.
Accordingly, when customer receivables are kept below optimal levels, the benefit from trade
credit will prevail, an increase of customer receivables leads to a rise of firm value. Conversely,
when customer receivables are kept above the optimal level of receivables, it will reduce the
value of the business.
Thus, providing trade credit can bring pros and cons to the company. Therefore, the
businesses need to balance the benefits and costs when providing trade credit. The trade credit’s
gain include: (1) increasing sales and profits; (2) strengthening long term business relationships
with customers; (3) being a part of the company's pricing policy to stimulate demand; (4) being
an investment strategy to find customers; (5) generating interest income for buyers' late
payments. In addition to the benefits, trade credit also brings disadvantages such as: (1) financial
risk; (2) increasing cost of credit management. Therefore, the relationship between customer
receivables and business value will become negative at a high level of customer receivables.

This is because the cost of trade credit will outweigh the benefits at a too high level of customer
receivables (Martínez-Sola et al., 2012).
1.2. Factors affecting the trade credit of the business
1.2.1. The objective factors
The objective factors affecting trade credit include a country's monetary policy, financial
system development and legal infrastructure; the development of financial markets and financial
intermediaries; macroeconomic growth; characteristics of the business line.
1.2.2. The subjective factors
The subjective factors affecting trade credit include: years of operation, size, net cash flow,
short-term finance, short-term borrowing ratio, financial cost, sale growth, asset turnover, shortterm asset ratio, gross profit margin, inventory ratio and liquidity.
1.3. Theories applied to research the trade credit of the business
- Theory of customer receivables management
- Theory of seller payables management
- Theory of the trade-off between risk and expected return.

CHAPTER 1: THEORETICAL FRAMEWORK OF TRADE CREDIT AND
THE FACTORS AFFECTING ENTERPRISES’ TRADE CREDIT
1.1. Trade credit of the business
1.1.1. The concept of trade credit
Trade credit is the credit between enterprises in the buying and selling process.
Specifically, the vendor agrees to the customers to get the products with delay payment
conditions within a certain period. This investment is recognized as the buyers’ account
receivable with the sellers, and this capital appropriation is recognized as the accounts payable
in the balance sheet of the purchaser.
1.1.2. Characteristics of trade credit
- The object of trade credit is commodities, not cash
- The manufacturers are the organizations involving in the trade credit relationship.
- The credit scale is usually small
- Credit periods are usually short
1.1.3. The purpose of forming trade credit

There are three motivations behind the emergence of trade credit which are finance, cash
flow management, and sales (García-Teruel and Martínez-Solano, 2010a). These motives are
rooted in theories: financial advantage theory, transaction costs theory, price discrimination
theory (Petersen and Rajan, 1997).
1.1.4. The role of trade credit
- Accelerate the process of goods’ distribution, reduce storage costs of credit vendors and
shorten business cycle of purchasers.
- Save expenses and speed up the money circulation.
- Fostering business growth and economic development
1.1.5. The impact of trade credit on business performance
1.1.5.1. The impact of trade payables on business performance
Most of pieces of research suggest that trade payables have a beneficial effect on the
firm's efficiency, i.e., appropriating payables for as long as possible, whenever it does not affect a firm's
credit rating. There are no studies, however, reveal that the trade payables have an adverse impact on
firm's performance. There are a few studies confirming that company’s performance negatively affects
the enterprise's accounts payable. Since a reduction of efficiency and low profitability causes
the expansion of payment period toward the suppliers, thus the account payables rises.
1.1.5.2. The impact of customer receivables on business performance
Pertaining to the previous studies, the impact of customer receivables on the operational
performance can be positive or negative. Only one study by Martínez-Sola et al. (2012) showed

CHAPTER 2: RESEARCH METHODS
2.1. Proposed research model and research hypothesis
2.1.1. Research model of factors affecting trade credit of enterprises
To answer the research question about factors affecting trade credit of enterprises, the
author uses 2 models on the basis of the inheritance and development from the previous studies,
especially the study of García-Teruel and Martínez-Solano (2010a). Specifically:
Model 1: Examining the factors affecting the customer receivables of the enterprise
REC it = β0 + β1PROVIit + β2GROWTHit + β3SIZEit + β4LAGE it + β5STLEV it + β6FCOST it
+ β7CFLOWit + β8TURNit+ β9GPROFit + β10INVENit+ β11LIQ it+ εit (1)

Of which: PROVI is Provisions for doubtful debts. This is a new variable added to the
model by the author. Currently in Vietnam, the provision for bad debts is made accordance with
“Circular 48/2019/TT-BTC dated 08/08/2019 of the Ministry of Finance guiding the
appropriation and handling of provisions for devaluation of inventories, loss of investments,
bad debts and warranty for products, goods, services, construction works at enterprises”.


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Provisions are seen as expenses of the business. Therefore, if the enterprise makes a provision,
it will be reduced a part of corporate income tax payable. However, for many listed companies,
provision reduces corporate profits and affects the market value of shares (Cheng et al., 2009).
So corporations will try to increase revenue to cover the losses or potential loss to not to affect
the market value of the stock.
Therefore, if the provision for bad debts increases, it indicates that the risk of the business
is likely to rise, so the enterprise will limit granting trade credit to customers. However, the
growth in provision for bad debts may also increase customer receivables. Because if the
provision for bad debts goes up, it reduces profits and stock value. Hence, the enterprises raise
the adoption of trade credit strategy, leading to an increase of customer receivables, stimulating
revenue and profit. Thus, the study does not have a straightforward forecast for the relationship
between the provision for doubtful debts and the receivables. This will be verified experimentally.
The research hypothesis is summarized in Table 2.1 with the expectation of the sign as
follows:
Table 2.1. Describe the variables measuring the factors affecting customer receivable
Variable

Dependent
variable

Customer
receivables
rate
Independent
variables
Provision
for bad
debts

Symbol

REC

PROVI

Scale

Expectations Studies have been done that have
for the sign
corresponding scales

Average
customer
receivables/
Total
average assets

Absolute value of the
average provision for
bad

debts/
Total
average assets

Niskanen and Niskanen (2006);
Martínez-Sola et al. (2012); Khan
et al. (2012), Tran Ai Ket (2017)

+/-

(Sales year t – Sales
year t-1)/ Sales year t-1

+/-

SIZE

Ln (Total Revenue)

+/-

LAGE

Ln (1 + Years of
operation)

Sale growth

GROWTH

Size

Years of
operation

+

Petersen and Rajan (1997),
Niskanen and Niskanen (2006),
García-Teruel and MartínezSolano (2010a), Khan et al.
(2012), Phan Dinh Nguyen and
Truong Thi Hong Nhung (2014),
Shi et al. (2016)
Martínez-Sola et al. (2012)
Petersen and Rajan (1997),
Niskanen and Niskanen (2006),
García-Teruel and MartínezSolano (2010a), Khan et al.
(2012), Shi et al. (2016), Tran Ai
Ket (2017)

Variable

Short-term
finance

Symbol

STLEV

Financial

cost

FCOST

Net cash
flow

CFLOW

Asset
turnover

TURN

Gross profit
margin

GPROF

Inventory
ratio

INVEN

Liquidity

LIQ

Scale

Average
debt/ Sales

short-term

Financial
cost/
(Average payables Average payables to
sellers)
(Profit after tax +
Depreciation) / Sales
Sales/(Average
total
assets
Average
customer receivables)
Gross margin/ Sales
Average
inventory/
Sales
Average Cash and Shortterm
investments/
Average short-term debt

Expectations Studies have been done that have
for the sign
corresponding scales

+/-

García-Teruel and MartínezSolano (2010a), Vaidya (2011),
Phan Dinh Nguyen and Truong
Thi Hong Nhung (2014), Shi et
al. (2016)

-

García-Teruel and
Solano (2010a)

Martínez-

+/-

García-Teruel and
Solano (2010a)

Martínez-

+/-

García-Teruel and
Solano (2010a)

Martínez-

+
+/-

Petersen and Rajan (1997),

García-Teruel and MartínezSolano (2010a)
Bougheas et al. (2009), Vaidya
(2011)
Nadiri (1969)

Source: Author's synthesis
Model 2: Examining the factors affecting the trade payables of the enterprise
PAY it = β 0 + β1GROWTHit + β 2SIZEit + β 3LAGE it + β 4STFINDit+ β5FCOST it +
β6CFLOWit + β7CURRASit + β8INVENit +β9LIQ it + εit (2)
The research hypothesis is summarized in Table 2.2 with the expectation of the sign as
follows:
Table 2.2. Describe the variables measuring the factors affecting trade payables
Expectations Studies have been done that
Variable
Symbol
Scale
for the sign
have corresponding scales
Dependent
variable
Petersen and Rajan (1997),
Seller
Niskanen and Niskanen (2006)
Average seller payables/
PAY
payables
and
García-Teruel
and
Average total assets

rate
Martínez-Solano
(2010a),
Tran Ai Ket (2017)
Independent
variables


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Sale growth GROWTH

(Sales year t – Sales year t1)/ Sales year t-1

10

+

Size

SIZE

Ln (Total Revenue)

+/-

Years of
operation

LAGE

Ln (1 + Years of operation)

+/-

Short-term
borrowing
ratio

STFIND

Average
short-term
borrowings / Average total
assets

-

Financial
cost
Net cash
flow
Short-term
asset ratio
Inventory
ratio
Liquidity

Financial cost/ (Average
payables

Average
payables to sellers)
(Profit after tax +
CFLOW
Depreciation) / Sales
Average short-term assets /
CURRAS
Average total assets
FCOST

INVEN
LIQ

Average inventory/ Sales
Average Cash and Shortterm investments/ Average
short-term debt

+
+
+/-

Petersen and Rajan (1997),
Niskanen
and
Niskanen
(2006), García-Teruel and
Martínez-Solano
(2010a),
Khan et al. (2012), Phan Dinh
Nguyen and Truong Thi Hong

Nhung (2014), Shi et al.
(2016)
Martínez-Sola et al. (2012)
Petersen and Rajan (1997),
Niskanen
and
Niskanen
(2006), García-Teruel and
Martínez-Solano
(2010a),
Khan et al. (2012), Shi et al.
(2016), Tran Ai Ket (2017)
García-Teruel and MartínezSolano (2010a), Phan Dinh
Nguyen and Truong Thi Hong
Nhung (2014), Tran Ai Ket
(2017)
García-Teruel and MartínezSolano (2010a)
García-Teruel and MartínezSolano (2010a)
García-Teruel and MartínezSolano (2010a)
Bougheas et al (2009), Vaidya
(2011)
Nadiri (1969)

Source: Author's synthesis
2.1.2. Model to study the impact of customer receivables on business performance
To answer the research question of the impact of customer receivables on the performance
of Vietnamese listed companies, the author inherits and develops from the research model of
Martínez-Sola et al (2012) to set up 2 models, including:
Model 3: Testing the non-linear relationship between customer accounts receivable and
business performance

Vit = β0 + β1(RECit) + β2(RECit2) + β3(GROWTHit) + β4(SIZEit) + β5(LEVit) + εit (3)
The research hypothesis is summarized in Table 2.3 with the expectation of the sign as
follows:

Table 2.3. Describe the variables used to test the nonlinear relationship between
customer accounts receivable and business performance
Expectations Studies have been done that
Variable
Symbol
Scale
for the sign
have corresponding scales
Dependent
variable
Return on
Profit after tax /
Wang (2002), Forghani et al.
ROA
Assets
Average total assets
(2013), Bagh et al. (2016)
Return On
Profit after tax /
Wang (2002), Forghani et al.
ROE
Equity
Average equity
(2013), Bagh et al. (2016)
Independent
variables

Niskanen and Niskanen (2006);
Average
customer
Customer
Martínez-Sola et al. (2012);
REC
receivables/
Total
+
receivables rate
Khan et al. (2012), Tran Ai Ket
average assets
(2017)
The squared
Square of (Average
(REC)2 customer receivables /
Martínez-Sola et al. (2012)
customer
receivables ratio
Average total assets)
Geroski et al. (1997); Claver et
al. (2002); Samiloglu and
(Sales year t – Sales year
Sale growth GROWTH
+
Demirgunes (2008); Martínezt-1)/ Sales year t-1
Sola et al. (2012); Yazdanfar
(2013)
Martínez-Sola et al. (2012);
Size

SIZE
Ln (Total Revenue)
+/Yazdanfar (2013)
Financial
Average Liabilities /
Goddard
et
al.
(2005);
LEV
Leverage
Average Equity
Martínez-Sola et al. (2012)
Source: Author's synthesis
H21: The impact of trade receivables on the performance of Vietnamese listed companies
is non-linear (inverted U shape). This means that the relationship between customer accounts
receivable and performance of the listed Vietnamese companies will not be monotonous
(concave). Specifically, there is a positive relationship when customer receivables are low and
there is a negative relationship when customer receivables are high. At the same time, there is
an optimal level of customer receivables where the performance of Vietnamese listed companies
is the greatest. Therefore, the study expected positive sign for variable REC (β 1> 0) and negative
sign for variable REC2 (β2 <0). This reversal point is the optimal customer receivables and is
equal to - β1/2 β 2.
Model 4: Examining the impact of the change in customer receivables on the business
performance
Vit = β0 + β1(DEVIATIONit) + β2(GROWTH it) + β3(SIZEit) + β4(LEVit) + εit (4)


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DEVIATION: it represents the deviation from the optimal receivable level, calculated by

taking the absolute value of the residual in the first model. DEVIATION is used to determine
whether deviations from target receivables affect the performance of Vietnamese businesses. At
the same time, we removed the two REC and REC 2 variables in the third model and replaced
the DEVIATION variable, then regressed the DEVIATION variable in the fourth model.
H22: When the receivables are higher or lower than the target receivables, they reduce
the efficiency of Vietnamese enterprises, ie β1 <0.
The research hypothesis is summarized in Table 2.4 with the expectation of the sign as
follows:
Table 2.4. Describe the variables used to test the effect of change in customer receivables
on the performance of the business
Expectations Studies have been done that
Variable
Symbol
Scale
for the sign
have corresponding scales
Dependent
variable
Profit after tax /
Return on
Wang (2002), Forghani et al.
ROA
Average total
Assets
(2013), Bagh et al. (2016)
assets
Return On
Profit after tax /
Wang (2002), Forghani et al.
ROE

Equity
Average equity
(2013), Bagh et al. (2016)
Independent
variables
Deviation
Absolute value of
from optimal DEVIATION residuals in model
Martínez-Sola et al. (2012)
receivables
1
Geroski et al. (1997); Claver et al.
(Sales year t –
(2002);
Samiloglu
and
Sale growth
GROWTH Sales year t-1)/
+
Demirgunes (2008); MartínezSales year t-1
Sola et al. (2012); Yazdanfar
(2013)
Ln (Total
Martínez-Sola et al. (2012);
Size
SIZE
+/Revenue)
Yazdanfar (2013)
Average
Financial

Goddard
et
al.
(2005);
LEV
Liabilities /
Leverage
Martínez-Sola et al. (2012)
Average Equity
Source: Author's synthesis
2.2. Data collection methods and processing data
2.2.1. Data sources
Data used in the study were collected from two sources, which are primary and secondary
- Primary data: obtained from in-depth interviews with business leaders about factors
affecting the trade credit management of listed companies in Vietnam and the impact of trade
credit on the performance of Vietnam's listed companies.

12
- Secondary data: obtained from the financial statements of Vietnamese listed companies
excluding financial sector on the HNX and HOSE provided by the General Statistics Office of
Vietnam with the high reliability.
2.2.2. Data analysis method
 Qualitative method
The method used in this study is a method of in-depth interviews in the form of semistructured firms’ executive about the factors affecting trade credit management in Vietnamese
listed companies.
The main objective of the survey is to assess the current situation of using trade credit
policies and the factors affecting the granting and use of trade credit of Vietnamese listed
companies. At the same time, the survey tests whether trade credit has an impact on the
performance of Vietnamese listed companies. The survey’s findings will support the academic
world the manner to explain quantitative empirical research results about the current situation

of factors affecting trade credit and the impact of trade credit on the performance of Vietnamese
listed companies. Since then, the thesis proposes suitable recommendations to improve the
management of trade credit for listed companies in Vietnam.
 Quantitative method
The study uses multivariate linear regression models and tabular data for Vietnamese listed
companies with the support of Stata 14.0 software.
The thesis uses Random Effects Model (REM), Fixed Effects Model (FEM), Feasible
Generalized Least Squares (FGLS) and Generalized Method of Moments (GMM). The author
uses necessary tests to select the appropriate model, as well as detecting and correcting model
defects such as F-test, Hausman test, VIF coefficient, Wald test, Breusch test -Pagan test,
Wooldridge test, Hansen test and Arellano-Bond test. In particular, the author uses the GMM
model - this is a modern estimation method that allows to overcome many defects of the model
such as heteroscedasticity, autocorrelation and endogenous phenomena in the model.
2.3. Research data
2.3.1. Qualitative research data
Qualitative research data includes in-depth interviews of listed companies. The author
stops interviewing when the information is saturated and there is no new information available.
Number of interviews was 21, including 2 enterprises in infrastructure services, 2 enterprises in
technology industry, 3 enterprises in industry, 4 enterprises in consumer services, 4 enterprises
in consumer goods, 4 enterprises in basic materials and 2 enterprises in the health sector in
Hanoi, Ho Chi Minh City, Da Nang and Binh Dinh. Time for each interview lasted about 35-60
minutes.
2.3.2. Quantitative research data
Quantitative research data includes the financial statements of 326 non-financial joint
stock companies listed on the HNX and HOSE, provided by the General Statistics Office of
Vietnam in the 2013-2017 period with approximate 1630 observations in 7 industry groups
including: basic materials, industry, consumer goods, health care, consumer services,
infrastructure services and technology.

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CHAPTER 3: THE CURRENT SITUATION OF TRADE CREDIT
OF VIETNAMESE ENTERPRISES

3.2.3. Trade credit policy of Vietnamese listed companies
The current status of the trade credit policy of Vietnam's listed companies is expressed in
the outcomes of the in-depth interviews with corporate executives.
 The usage levels of the trade credit policy
100% of businesses use trade credit policy in sales activities.
 Reasons for using the trade credit policy
The main reason why businesses implement trade credit policy is the competition and to
remain business relationships.
 Factors affecting trade credit policy
Revenue and profit; (2) Bank interest rate; (3) Inventories; (4) Ability to rotate capital,
cash flows; (5) Industry features
 Trade credit policy
- Credit term and discount rate
The credit term depends a lot on the industry, but it is usually between 30 and 120 days.
- Credit requirements
Normally, businesses currently use the 5C judgment to measure credit quality: Character,
Capacity, Capital, Collateral and Condition.
- Debt collection policy
Debt collection policy is the policy which is related to the collection process of account
receivables. Most of businesses believe that the debt collection process consists of the following
steps: determining the amount of receivales should be claimed, classifying customers by the
receivables’ levels, choosing debt collectors, reminding collectors, reminding customers to pay
when the due date is close and negotiating with consumers. If they still don’t pay the

debt, company will ask for court intervention.
- Payment discount
Payment discount is the discount amount of money for early payment customers. It is a
tool to encourage customers to pay account receivalles on time.
 The impact of trade credit policy on business performance
The majority of enterprises stated that trade credit policy has a positive impact on business
performance. However, a few said that if they do not control their receivables well, bad debts will
appear. Thereby they negatively impact on the firms’ operational efficiency since all of firm always
need financial sources to do business.
3.2.4. Characteristics and role of trade credit for Vietnamese listed companies
 Trade credit characteristics of Vietnamese listed companies
- Trade credit is used by businesses popularly and with simple manner
- Trade credit potentializes many risks
- There haven’t existed the specific regulations of trade credit yet.
 The role of trade credit for Vietnamese listed companies
- Increase financial resources for production and business activities
- Save the cost of capital and money circulation costs
- Speed up the products circulation

3.1. Characteristics of business operations of listed companies on the Vietnamese
stock markets
3.2. Trade credit situation of Vietnamese listed companies
3.2.1. Trade credit value scale
3.2.1.1. Account Receivables
The proportion of accounts receivable from customers to the total assets in Vietnamese
listed companies is significant as 18,68%. However, if we compared with the study of GarcíaTeruel and Martínez-Solano (2010a), the ratio of trade receivables to total assets of Vietnam is
still low compared to other countries, for example in Spain is 39,28%, Greece is 36,55%, France
is 35,55%,... and Finland has the lowest rate of 19,18%.
3.2.1.2. Account Payables
The average market payables accounted for 11,60% of total liabilities and equity. The

technology industry has the highest account payable proportion with an average rate of 14,44%.
Especially, in this industry, there are businesses that hold the account payable as 69,45% of total
liabilities and equity. This is also the industry sector providing the most trade credit to customers
in the whole market. However, the seller's capital appropriation rate in Vietnamese list
companies is still much lower than in other countries in the world.
3.2.2. The current situation of the use of trade credit in Vietnam's listed companies
The current situation of trade credit usage of Vietnamese listed companies is reflected
through in-depth interviews with business leaders.
 The usage levels of trade credit
According to results being obtained from in-depth interviews, 100% of businesses use
credit from suppliers. In general, Vietnamese businesses are now usually allowed to pay 30-6090 days deferred, rarely 120 days (DN1).
 Reasons for using trade credit
The majority of enterprises believe that the main reason of using trade credit is capital
rotation. In addition, “this activity helps businesses obtain more capital and ensures business
process” (DN20).
 Factors affecting the use of trade credit
(1) Prestige; (2) Cash flow and solvency; (3) Inventories; (4) Bank interest rate; (5)
Discount rate for early payment; (6) Sales ability
 The impact of the use of trade credit on business performance
Most businesses said that commercial credit has a positive impact on business performance.
According to DN1, “the longer an enterprise occupies trade credit, the easier it is to turn the capital
around, thus the enterprise will make many good policies and its profitability will be better”.
However, a few businesses hold a firm belief that the usage of trade credit is only
“reluctant” since if the debt is too high, the reputation will decrease, the suppliers will
stop providing the goods. This leads to there might be not enough materials for production and
business (DN8) or firms need to import materials at the high prices, consequently lowering firm
performance (DN14, DN21).


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3.3. Assess the current status of trade credit of Vietnam's listed companies
Currently, trade credit is being used by many Vietnamese listed companies, but there are
many potential risks. Vietnamese listed companies also have a certain credit requirements.
However, according to the results of in-depth interviews, many enterprises do not have detailed
binding terms, as well as the debt collection process has not been properly built. Therefore,
businesses need to study the strict terms of the business contract and establish a strict debt
collection process to avoid any loss to businesses. In addition, according to Vietnamese listed
companies, trade credit is a valuable source of funding, so most businesses do not miss this
source of capital to diversify the financial sources and maintain business operations. However,
it does not mean that the companies can use these financial sources as much as possible, the firms’
reputation and the relationship between them and their vendors are the core determination.
The application of trade credit policies of Vietnamese listed companies is heavily
influenced by the degree of corporate creditworthiness. In general, Vietnamese enterprises with
large scale and the stable market will reduce the attraction of customers through trade credit
policy. Besides, long-established businesses will provide credit to customers more than
misappropriating capital from suppliers.

CHAPTER 4: RESULTS OF THE TEST OF FACTORS AFFECTING
TRADE CREDIT OF VIETNAMESE ENTERPRISES
4.1. Descriptive statistics
4.2. Examining the factors affecting the customer receivables of Vietnamese listed companies
Table 4.1. Factors affecting customer receivables
Dependent variable
REC
Estimation method
PROVI
GROWTH

SIZE
LAGE
STLEV
FCOST
CFLOW
TURN
GPROF
INVEN
LIQ
Number of observations
R2
F-test
Breusch-Pagan test
Hausman test
Wald test

FEM
0,7116***
-0,0165***
-0,0153***
0,0046
0,0880***
-0,0281
-0,0421
0,0620***
-0,0493*
-0,1288***
0,0008
1630
0,2837

0,0000

REM
1,0127***
-0,0111**
-0,0126***
-0,0012
0,1071***
-0,0298
-0,0658**
0,0614***
-0,0413
-0,1112***
0,0034
1630
0,2783
0,0000

0,0000
0,0000

FGLS
1,4667***
-0,0114***
-0,0098***
-0,0113*
0,0999***
-0,0275
-0,0819***
0,0628***

-0,0160
-0,0606***
0,0058***
1630

GMM
1,6450**
-0,0201
0,0024
-0,0152
-0,0893
-0,2483*
-0,9798*
-0,0913
0,4522
-0,2008*
-0,0224
1304

Wooldridge test
AR (2)
Hansen test

0,0000
0,103
0,505

(*), (**) and (***) represent 10%, 5%, and 1% significance respectively
Source: Author's test results
In table 4.1, employing the GMM estimation method, there are 4 factors that affect the

receivables in the whole market including: provision for bad debts (PROVI), net cash flow
(CFLOW), financial cost (FCOST) and inventory ratio (INVEN).
Additionally, each industry group will have its own unique and different business
characteristics, so the factors affecting the customer receivables of each industry group are also
different. The test results of factors affecting the customer receivables of Vietnam's listed
companies under the GMM method are detailed in Appendix 7.
4.3. Examining the factors affecting the trade payables of Vietnamese listed companies
Table 4.2. Factors affecting trade payables
Dependent variable
PAY
Estimation method
FEM
REM
FGLS
GMM
GROWTH
0,0013
0,0010
0,0020
-0,0068
SIZE
0,0096**
0,0090***
0,0044***
0,0124**
LAGE
0,0077
-0,0036
-0,0210*** -0,0102
STFIND

-0,3408***
-0,3024*** -0,2511*** -0,1972***
FCOST
0,0850*
0,0859**
0,0384*
0,0160
CFLOW
-0,0978***
-0,1353*** -0,0919*** -0,1404***
CURRAS
0,2403***
0,2323***
0,2096***
0,1369***
INVEN
-0,0384**
-0,0424*** -0,0269*** -0,0877***
LIQ
-0,0527***
-0,0512*** -0,0405*** -0,0343***
Number of observations 1630
1630
1630
1304
R2
0,3007
0,2968
F-test
0,0000

Breusch-Pagan test
0,0000
Hausman test
0,0003
Wald test
0,0000
Wooldridge test
0,0000
AR (2)
0,192
Hansen test
0,249
(*), (**) and (***) represent 10%, 5%, and 1% significance respectively
Source: Author's test results
In table 4.2, by using the GMM method of estimation, there are 6 factors affecting the
trade payables in the whole market including short-term loan ratio (STFIND), net cash flow
(CFLOW), short-term assets ratio (CURRAS), inventory ratio (INVEN), liquidity (LIQ), firm
size (SIZE).


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In addition, each industry group will have its own unique and different business
characteristics, so the factors affecting the trade payables of each industry group are also
different. The test results of factors affecting the trade payables of Vietnam's listed companies
under the GMM method are detailed in Appendix 8.

Table 4.4. The regression results test the change of customer receivables to the

performance of Vietnamese listed enterprises
Estimation method
GMM
Dependent variable
ROA
ROE
DEVIATION
-0,0568*
-0,1285*
GROWTH
0,0117
0,0370**
SIZE
0,0119***
0,0254**
LEV
-0,0306***
-0,0119
Number of observations
1304
1304
AR (2)
0,204
0,193
Hansen test
0,747
0,973
(*), (**) and (***) represent 10%, 5%, and 1% significance respectively
Source: Author's test results
The regression results in Table 4.4 reveal that the expectation of business performance will

decrease when the ratio of customer receivables to assets deviated from the optimal value is
completely reasonable. Specifically, the coefficient of the variable DEVIATION is negative and
has a significant level of 10% in both cases of the dependent variable ROA and ROE. Thus, the
test results have highlighted that when the customer receivables ratio shifted away the optimal
value, the firm performance will decrease.
Additionally, due to the different business characteristics of each industry sector such
as companies in some industry use trade credit accounted for more than 20% of their total assets
(technology, healthcare, industry), some industries employ trade credit policy of less than 20%
of total assets value (infrastructure services, consumer services, consumer goods, basic
materials). So the optimal level of customer receivables for each group industry is diversified.
The test results indicate that in the infrastructure services, consumer services, consumer goods
and basic materials sectors, the impact of the customer receivables on firm performance in the
reverse U-shaped, with the optimal customer collection is about 15,10%, 17,42%, 19,51% and
17,50% respectively. Specifically, the results of testing the non-linear relationship between the
customer receivables and the performance of each group of Vietnamese listed companies
are described in Appendix 9; The outcomes of analysis the effect of customer receivables’
changes on Vietnamese listed companies’ performance is specified in Appendix 10.

4.4. Examining the impact of customer receivables on the performance of Vietnam's
listed enterprises
The regression results show that the expectation of a nonlinear relationship between
customer receivables and business performance is completely reasonable (table 4.3). The
regression coefficients of the variables REC and REC2 are statistically significant. When the
dependent variable is ROA, the coefficients of REC and REC2 are both significant
both significant at level 5%. Similarly, ROE is replaced as the dependent variable, the
significance of the coefficients REC and REC 2 are both at 10%.
Table 4.3. The results of regression of non-linear relationship between customer
receivables and performance of Vietnamese listed companies
Estimation method

GMM

Dependent variable

ROA

ROE

REC

0,4295**

0,9869*

REC 2

-0,8597**

-1,9625*

GROWTH

0,0223***

0,0728***

SIZE

0,0082*

-0,0031

LEV

-0,0254***

-0,0141

Number of observations

1304

1304

AR (2)

0,256

0,761

Hansen test

0,149

0,766

(*), (**) and (***) represent 10%, 5%, and 1% significance respectively
Source: Author's test results
When ROA and ROE are employed as the dependent variable respectively, the coefficient
of REC is positive and the coefficient’s sign of REC2 is negative as expectation. This proves

that a nonlinear relationship exists between customer receivables and business performance, ie
it has an inverse U shape.
In order to test the robustness of the research results, which mean that how business
performance will change if the ratio of customer receivables to assets deviates from the optimal
value. The study eliminates two variables REC and REC 2 in the third model and replaced with
the variable named DEVIATION. Then regression was performed in the fourth model of
DEVIATION. The research results are presented in table 4.4.

CHAPTER 5: RESEARCH DISCUSSIONS AND RECOMMENDATIONS
5.1. Reasearch discussions
5.1.1. Factors affecting the trade credit in Vietnam's listed companies
5.1.1.1. Factors affecting the customer receivables in Vietnamese listed companies
 For the whole market
- When the provision for doubtful debts rises, the customer receivables increase. It is
because an increase of the bad receivables’ provision causes a rise of enterprise’s expense and
a fall of earnings, leading to a drop in the stock market value (Cheng et al., 2009). Therefore, in
order not to reduce profit and stock value, Vietnamese listed companies must raise revenue,
accelerate sales by loosening consumers’ trade credit policy rising customer receivables.


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Logically, the provision for doubtful debts was generated from bad account receivables, so
endogeneity will appear. Therefore, the author has used GMM estimation method to overcome
endogenous problems and the result proves that the bad debt provision’s coefficient is
significant at 5% level with the largest value of regression coefficient (β = 1,6450). Thus the
new factor of the model is the provision for doubtful debts that has the greatest and positive
influence on the customer receivables.

- If a Vietnamese listed company chooses to stabilize its cash flows as its priority, it will
limit trade credit to its customers in order to avoid possible risks affecting the operating cash
flow of the business.
- When the financial costs of Vietnamese listed companies increase or interest rates rise,
businesses will implement a tight trade credit policy.
- The inventory ratio is also an important factor affecting the customer receivables of
Vietnamese listed companies and it affects on a negative direction.
 For each industry group
The first factor is the provision for bad debts. This is a new factor of the model and it
positively affects the accounts receivable of customers in infrastructure services, industry,
consumer goods, and healthcare. That means when increasing the provision for bad debts, to
avoid reducing profits, businesses in these industry groups also increase the application of trade
credit policies to encourage increased revenue. This leads to an increase in customer receivables.
The second factor is the firm size. For the infrastructure services industry, the larger the
enterprise is, the easier financial resources should be provided. Thus these companies provide more
trade credit to customers. Because enterprises in the infrastructure services industry produce
essential goods for people's lives such as electricity and water, the government has preferential
interest rates on loans, especially for large enterprises. This has enabled these businesses to provide
trade credit to their customers. Moreover, with the characteristics of the industry with great demand,
sustainable growth, low risk and the market is often kept stable for large businesses, these
businesses are easy to accept for customers to buy on deferred payment, i.e. create conditions for
business customers. As for small businesses with weak financial resources, it is difficult to create
conditions for customers through trade credit policies. However, for the technology industry and
industry, the bigger the business is, the less likely it is for customers to occupy capital and strictly
manage their accounts receivable, which in turn reduces customer receivables. The reason is that
these two industries typically have quite a large level of customer receivables compared to the other
industries. The technology industry's products, goods and services are highly competitive and are
often characterized by service provision first and payment later. As for industrial enterprises, in
which most of them are related to the construction and installation sector, the time for settling capital
recovery is slow due to the problem of documents and settlement procedures. Therefore, with the

advantage of large enterprises, they will limit trade credit to customers in order to reduce related
costs such as debt collection costs, management costs, and increased capital turnover.
The third factor is years of operation. For the consumer services, basic materials, and
medical industries, the longer a business has been in operation, the more restrictive it will be to
granting commercial credit to customers. Thus, in three industry sectors, when the
enterprise is long existence, its position and reputation are well-known to customers, the need
to attract consumers through the trade credit policy is unnecessary. On the contrary, firm will

tighten trade credit policy as well as better control customers, leading to a decrease in customer
receivables.
The fourth factor is short-term finance. For the infrastructure services, consumer goods
and basic materials industries, the more short-term debts are allowed to expand production and
business activities, the more customers’ receivables the firm has. This is due to the matching
financing between short-term liabilities and short-term assets.
The fifth factor is the financial cost. For the technology and consumer services industries,
when the financial costs increase, the cost of capital rises, causing profits to drop and it is more
difficult in finding the suitable financial sources. Therefore, businesses will reduce the
customers receivables and limit providing trade credit, causing a decrease in customer receivable.
However, for the infrastructure services industry, if financial costs increase, businesses will create
more conditions for customers to buy goods with deferred payment. Because when financial costs
increase, both businesses and customers are subject to increased interest from financial institutions.
But companies in the electricity and water infrastructure sector still enjoy preferential interest rates
on loans. This is specified in Decree No. 38/2013 / ND-CP and Decree No. 16/2016 / ND-CP.
Moreover, when interest rates rise, customers will find more difficult to get loans
from financial institutions, therefore they tend to occupy payables from their vendors more. Hence,
companies will use trade credit policy with the goal of attracting consumers. This policy will help
to stimulate revenue growth and reduce financial cost pressure on customers. Consequently, it will
make firms’ earnings grow little.
The sixth factor is net cash flow. For the infrastructure services industry, businesses with
a large net cash flow will create conditions for customers to buy goods with more deferred

payment and vice versa. In contrast, for the basic materials industry, this relationship is inverse.
Thus, enterprises in the fields of mining, metallurgy, chemical products, and forest products
give priority to controlling cash flow, avoiding financial risks. They will limit customers to
purchase products with later payment.
The seventh factor is asset turnover. In the infrastructure, technology, industrial and basic
materials services industry, the business with the greater turnover of assets is, the more trade
credit to customers is. However, the impact of asset turnover on customer receivables is only
mild. Since if the firm wants the asset turnover to increase rapidly, it will use more trade credit
policy which will boost the customers’ accounts receivable.
The eighth factor is the gross profit margin. In the consumer services and basic materials
industries, a highly profitable business will be willing to finance its customers, leading to an
increase in customer receivables. In contrast, for the health sector, when businesses want to have
high profits, they will not have the need to use trade credit policies to increase revenue, reducing
customer receivables. This is because the health sector is mainly sold to OTC (free block drugstore) and ETC (hospital block), in which most customers are allowed to pay later in a
period of 30-90 days. When pharmaceutical enterprises want to participate in the bidding for
commodity products in hospitals, they must comply with the “Regulations of the Law on
Bidding, specifically Decree 63/2014 / ND-CP dated June 26, 2014”. Therefore, the payment is
prolonged because it depends on the payment process of the hospital and the insurance
company, leading to increased debt collection costs, decreased profits, and reduced gross profit


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margin. Thus many pharmaceutical enterprises are now tending to change distribution mainly
to OTC channel, faster time of money recovery, and increased profits.
The ninth factor is inventory ratio. For industry, consumer services, consumer goods and
healthcare, to reduce inventories, firms must increase trade credit policies to attract customers,
leading to an increase in customer receivables.

The tenth factor is liquidity. For infrastructure services, consumer goods, and basic
materials, companies with good liquidity will create conditions for customers to buy goods with
deferred payment. But the impact of liquidity on customer receivables is only mild. Since, in
fact, businesses also need funds to do business and do not want customers to take over their
money in a long period.
5.1.1.2. Factors affecting the trade payables of Vietnamese listed companies
 For the whole market
- The short-term borrowing ratio is the most crucial factor influencing the Vietnamese
listed companies’ trade payables and has a negative effect.
- If Vietnamese listed companies have problems with the cash flow, they will occupy more
payables from their sellers to fulfill capital needs and support business operations.
- Firms that use more short-term assets will tend to utilize more account payables.
- If Vietnamese listed companies have low inventory ratio, they can raise their payables.
- Liquidity is a factor that has a detrimental effect on seller's payables.
- The size of Vietnamese listed firms has a positive effect on trade payables.
 For each industry group
The first factor is firm size. For the infrastructure, industrial and consumer services
industries, the bigger the business is, the higher the reputation achieves, the easier it is to
negotiate and take the supplier's capital, leading to a rise of payables. However, in the
technology industry sector, the smaller the business is, the more money is uitilzed from its
vendors. It can be explained that small-scale businesses in the technology industry have limited
access to other sources of finance, so they will use more trade credit, resulting an increase
of payables.
The second factor is how many years of operation. For consumer services, basic materials,
and health industries, newly established businesses do not have many relationships with
financial institutions, so it is difficult to acquire the financial resources from these organizations.
So they have to use the supplier’s payable more. However, in the technology industry, longestablished businesses will have a better reputation than newly founded ones. As a result, they
are readily accessible using trade credit, resulting the higher account payables.
The third factor is the short-term borrowing ratio. In the technology industry, no effect of
the short-term borrowing ratio on the trade payables was found. On the contrary, in

most sectors such as infrastructure services, industry, consumer services, consumer goods, basic
materials, and health care, the short-term borrowing ratio adversely affects trade payables. It
can be understood that when enterprises have easy access to short-term bank loans, their trade
credit will be reduced, causing a reduction in trade payables. Thus, in the case of companies
having alternative financial sources, they have less need to use supplier funding.

The fourth factor is the financial cost. For the health sector, when the cost of external loans
increases, businesses will tend to switch towards more trade credit, leading to increased
payables to sellers. In contrast, the executives in the infrastructure services and technology
industries believe that when financial costs rise, firms will limit the trade credit policy. The
reason is that the cost of external borrowing increases usually due to the general raise of the
whole economy. Because in the 2013-2017 period, the infrastructure services and the
technology industry received the priority from the government to reach the preferential loans as
specified in Decree No. 38/2013 / ND-CP and Decree No. 16/2016 / ND-CP. Hence, if these
two sectors encounter increasing interest rates, others will also experience high or even
higher financial costs. The seller will thus limit the trade credit to the customers which makes
it hard for buyers to purchase products with delayed payment terms, resulting lower payables.
The fifth factor is the net cash flow. The study shows that in infrastructure services,
industry, consumer services, consumer goods and basic materials sectors, the net cash flow has
a detrimental effects on the accounts payable. It thereby proves that once Vietnamese listed
companies have a significant net cash flow, they will buy and pay immediately to receive potential
bonuses from suppliers, resulting a reduction of payables.
The sixth factor is the ratio of short-term assets. In infrastructure services, industry,
consumer services, basic materials, and health care group, that businesses with a high proportion
of short-term assets will have a large account payable. The interpretation is due to the
appropriate financing trend between assets and finance sources. In contrast, in technology
sector, if firms have a high proportion of short-term assets, account payables would be low. It
is because that the technology industry has the highest proportion of current assets which
accounts 75,99% averagely. Since they have too many short-term assets, the technological
companies couldn’t take advantage of the seller’s payables. Another explanation is that the

supplier have scarce resources. So technological businesses need to seek for another funding
source for short-term assets which are named short-term loans. Additionally, this industry is
supported by the government in reaching the loan with the preferential conditions.
The seventh factor is inventory ratio. In the technology industry, when businesses reduce
their inventories, payables to sellers rise. Since the technology businesses actively will use trade
credit policies to attract customers and to reduce inventories. It means that the business will not
have the cash to pay its creditors, causing the payables to go up. On the contrary, when the
consumer goods businesses have not sold their goods yet, inventory will increases, thus these
firms tend to postpone the payment to vendors, forcing an increase of payables.
The eighth factor is liquidity. The study proves in infrastructure services, industry, consumer
services, consumer goods, basic materials, and health care groups, liquidity negatively affects, but
slightly, the accounts payable. The reason is that when the liquidity increases, the enterprise will be
advantageous in paying payables, so the payables tend to decrease.
5.1.2. The impact of trade credit on the performance of Vietnamese listed companies
The research’s findings reveal that there is a non-linear relationship between accounts
customer’s receivable and the performance of Vietnamese listed companies. This results bring
to researchers and managers a crucial implication is that good management in trade credit policy
can enhance firms’ operational efficiency through the increase of ROA and ROE. The


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enterprises should try to ensure optimal customer receivables for maximum their business
performance. The optimal ratio of receivable on total assets of Vietnamese listed companies
is approximately 25%.
5.1.3. The impact of trade credit on the performance of Vietnamese listed companies by
industry group
Each industry group has specific business characteristics, thus the trade credit policy is

also different, leading to the various optimal proportions of receivables. According to research
results, only infrastructure, consumer services, consumer goods and basic materials industries
reveal a non-linear relationship between customer receivables and business performance.
For the infrastructure services industry, the average ratio of receivables is 11,55% of total
assets. Meanwhile, the optimal customer receivables ratio is about 15,10% of total assets. Thus,
on average, the infrastructure service sector can increase the proportion of customer receivables
further to maximize the business performance of the business, which is represented by ROE.
For the consumer services industry, the average ratio of receivables from customers is
12,86% of total assets. Besides that, the optimal ratio of receivables from customers is about
17,42% of total assets. Therefore, on average, the consumer service industry can increase the
proportion of customer receivables further to maximize the business performance of the
business, which are represented by ROA and ROE.
For the consumer goods industry, the average ratio of receivables from customers of the
whole industry is 14,18% of total assets. Meanwhile, the optimal ratio of receivables from
customers is about 19,51% of total assets. Thus, on average, the group of consumer goods can
increase the proportion of receivables from customers further to maximize the business
performance of the business, which is represented by ROA.
For the basic materials industry, the industry average ratio of receivables from customers
is 16,56% of total assets. Meanwhile, the optimal customer receivables ratio is about 17,50% of
total assets. Thus, the basic materials industry has the proportion of customer
receivables being closer to the optimal level compared to the other groups of industries. This
enables firms in this industry group to maximize their business performance, represented by ROE.

- When businesses have financial distress in cash flow and liquidity management, they
should use trade credit
- Calculate reasonable payment period to bring benefits to the businesses
5.2.2. Recommendations for the Government
- Establish a strong legal framework in trade credit relations
- Take control of macro issues like inflation and interest rates
- Establish a trade credit information center for businesses

- Establish and facilitate debt trading market
5.3. Limitations and future research directions
The limitation of the study is that the non-financial variables (such as credit rating, credit
history, manager gender) or macro variables (such as inflation, economic growth, interest rates)
are not included in the research model. In the theory of financial management, these variables
can affect the trade credit policy of the business. These are the interesting suggestions for further
research on factors affecting the trade credit of the business.
In addition, each type of business (private enterprise, limited liability company, partnership,
joint stock company) has different characteristics or each enterprise size (large enterprise, small
and medium enterprise) has different creditworthiness, so the granting and use of trade credit can
also vary. Therefore, it would be very attractive to consider these factors affecting trade credit. At
the same time, test whether there is a non-linear relationship between customer receivables and
business performance for each type of business or for each different type of enterprise size.
Besides that, appropriating capital from sellers might make managers have to weigh the
benefits and disadvantages toward business process. Therefore, follow-up research is needed to
study the impact of trade payables on firm's performance.

5.2. Recommendations
5.2.1. Recommendations for businesses
In business process, the company can take roles both as a provider and a recipient of trade
credit. To improve operational efficiency, the business must do well in each specific role.
5.2.1.1. Businesses play as the providers of trade credit
- Pay attention to factors affecting customer receivables and current versus optimal
customer receivables to make appropriate adjustments.
- Establish an effective receivable management process
5.2.1.2. Businesses play as the users of trade credit
- Enhanced the advantage is a large-scale business to use payables from suppliers
- Use more trade credit when commercial bank’s interest rates rise
- Depending on the characteristics of each business area, the businesses can choose to use
more trade credit or not.

CONCLUSION
Currently, trade credit is one of the issues that many businesses have concerned. According
to the current legislation in the Vietnamese market, most companies use trade credit to find,
attract and retain customers, as well as have financial sources to maintain business operations
to increase their profitability. It helps businesses have a close and connected business
relationship.
The thesis has identified the factors affecting trade receivables and trade payables of
Vietnamese listed companies in general and industry sectors in particular by the GMM
estimation method. GMM is a modern estimation method. It helps to overcome many defects
of the model such as autocorrelation, variable error variance and especially endogenous
phenomenon. Besides, the thesis has shown that there is a non-linear relationship between the
customer receivables and the performance of Vietnamese listed companies. At the same time,
the thesis has identified the average optimal receivables for the whole market and industry
groups (infrastructure services, consumer services, consumer goods, and basic materials). The
author expects that these findings and the recommendations can be a critical scientific backbone and
extremely valuable for other scholars, business executives, and the government to creat
the suitable regulations to enhance the operational efficiency in Vietnamese listed companies.