According to the Federal Fund Flows , trade payables amounted to US$2.1 trillion on non-financial companies balance sheets at the end of the third quarter of 2006, two times more than bank loans and three times as much as a short-term debt instrument known as commercial paper. Recent news reports have highlighted the problem of slow payments to suppliers as large companies extend their payment periods, often with crushing results for small businesses. Other countries have tried to reform visit this site right here the trade credit market, especially in Europe, where a directive was adopted in 2011 limiting inter-company payment periods for all sectors to 60 days (with a few exceptions). In an earlier paper , I showed that requiring payments to be made within shorter time periods had a large effect on small businesses survival when it was adopted in France. Receiving their money earlier led them to default less often on their own suppliers and their financiers. Their probability to go bankrupt dropped by a quarter. Accelerating payments To learn more about the impact of such reforms in the U.S., we studied the effects of speeding up payments to federal contractors.
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