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Risk scoring models for trade credit in small and medium enterprises

Risk scoring models for trade credit in small and medium enterprises
Risk scoring models for trade credit in small and medium enterprises
Trade credit refers to providing goods and services on a deferred payment basis. Commercial credit management is a matter of great importance for most small and medium enterprises (SMEs), since it represents a significant portion of their assets. Commercial lending involves assuming some credit risk due to exposure to default. Thus, the management of trade credit and payment delays is strongly related to the liquidation and bankruptcy of enterprises. In this paper we study the relationship between trade credit management and the level of risk in SMEs. Despite its relevance for most SMEs, this problem has not been sufficiently analyzed in the existing literature. After a brief review of existing literature, we use a large database of enterprises to analyze data and propose a multivariate decision-tree model which aims at explaining the level of risk as a function of several variables, both of financial and non-financial nature. Decision trees replace the equation in parametric regression models with a set of rules. This feature is an important aid for the decision process of risk experts, as it allows them to reduce time and then the economic cost of their decisions.
trade credit, scoring models, small and medium enterprises, multivariate regression, decision trees
Springer International Publishing
Terradez, Manuel
5501e5b3-62b7-4a83-b000-7d02f12afad6
Kizys, Renatas
9d3a6c5f-075a-44f9-a1de-32315b821978
Juan, Angel A.
a08d6aac-1e9b-4537-81a7-29a1ba791f26
Debon, Ana M.
ecaee976-4577-48b1-9baf-92374d4320cf
Sawik, Bartosz
d28e4275-e81f-418b-80b1-c065028ef3fb
Terradez, Manuel
5501e5b3-62b7-4a83-b000-7d02f12afad6
Kizys, Renatas
9d3a6c5f-075a-44f9-a1de-32315b821978
Juan, Angel A.
a08d6aac-1e9b-4537-81a7-29a1ba791f26
Debon, Ana M.
ecaee976-4577-48b1-9baf-92374d4320cf
Sawik, Bartosz
d28e4275-e81f-418b-80b1-c065028ef3fb

Terradez, Manuel, Kizys, Renatas, Juan, Angel A., Debon, Ana M. and Sawik, Bartosz (2015) Risk scoring models for trade credit in small and medium enterprises. In Springer Proceedings in Mathematics & Statistics. Springer International Publishing. 12 pp . (doi:10.1007/978-3-319-18029-8_26).

Record type: Conference or Workshop Item (Paper)

Abstract

Trade credit refers to providing goods and services on a deferred payment basis. Commercial credit management is a matter of great importance for most small and medium enterprises (SMEs), since it represents a significant portion of their assets. Commercial lending involves assuming some credit risk due to exposure to default. Thus, the management of trade credit and payment delays is strongly related to the liquidation and bankruptcy of enterprises. In this paper we study the relationship between trade credit management and the level of risk in SMEs. Despite its relevance for most SMEs, this problem has not been sufficiently analyzed in the existing literature. After a brief review of existing literature, we use a large database of enterprises to analyze data and propose a multivariate decision-tree model which aims at explaining the level of risk as a function of several variables, both of financial and non-financial nature. Decision trees replace the equation in parametric regression models with a set of rules. This feature is an important aid for the decision process of risk experts, as it allows them to reduce time and then the economic cost of their decisions.

Text
Terradez Et Al Risk Scoring Models For TC In SMEs 130805 - Accepted Manuscript
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Published date: 19 May 2015
Keywords: trade credit, scoring models, small and medium enterprises, multivariate regression, decision trees

Identifiers

Local EPrints ID: 434503
URI: http://eprints.soton.ac.uk/id/eprint/434503
PURE UUID: 0d813d49-1f93-4166-a88d-45ed6bacb06e
ORCID for Renatas Kizys: ORCID iD orcid.org/0000-0001-9104-1809

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Date deposited: 25 Sep 2019 16:30
Last modified: 09 Jan 2022 04:07

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Contributors

Author: Manuel Terradez
Author: Renatas Kizys ORCID iD
Author: Angel A. Juan
Author: Ana M. Debon
Author: Bartosz Sawik

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