Trade credit profitability measurement: application in a wholesaler-distributor case

• Autor(a) principal: Silva, Dany Rogers
• Data de Publicação: 2011
• Outros Autores: Ribeiro, Karem Cristina de Sousa, Sheng, Hsia Hua
• Tipo de documento: Artigo
• Idioma: eng; por
• Título da fonte: BBR. Brazilian Business Review (English edition. Online)
• Texto Completo: http://www.bbronline.com.br/index.php/bbr/article/view/303
• topic: Trade credit; credit risk; theory of restrictions; RAROC; Crédito comercial; risco de crédito; teoria das restrições; RAROC

Credit extension evaluation is traditionally marked by customer’s credit risk and his business potential, normally, the profitability that limit utilization may provide the company is not considered. Therefore, the purpose of this paper is to present a trade credit extension profitability measurement model. The literature used for the theoretical basis involves the profitability concept of the Theory of Restrictions (TOC) and the performance measure calculation as in RAROC model. Proposed model was applied in a wholesaler-distributor company and its results have enabled concluding that credit extension to customers rated as low risk is not always the most profitable option. The decision of companies that only take into consideration credit risk and customer size to set the credit limit may entail incorrect decisions that are decreasing the company’s gain instead of increasing the wealth of its owners.