Credit Crunchers

Following the financial crisis of 2008, many central banks, including the ECB, have implemented a program of quantitative easing. Quantitative easing is an instrument used by central banks to stimulate the economy in times when conventional monetary policy is inadequate.   With this policy, interest rates are lowered, making it easier for companies and consumers to obtain loans. One would assume that, since financing has become cheaper and more accessible, companies will turn to banks instead of other sources of financing. Would this mean that the use of trade credit is diminished? Unfortunately, the answer to this question is a bit more complicated than a simple yes or no, but will be widely discussed in our paper. For now we’ll just explain from which hypothesis we start. Research has shown that firms with difficult access to financial markets tend to obtain more trade credit from their suppliers, but do not extend more credit to their customers (Bastos & Pindado, ...

Can SME’s easily borrow money? In 2016 the amount of  Flemish companies seeking help from a credit intermediary has increased with 43 percent according to NSZ Belgium. More and more companies are trying to get a loan from the bank now interest rates are low. Only 1 out of 6 are being denied of a loan which is surprisingly low especially when Europe has tightened its rules on lending money to prevent another crisis. However we see that in Belgium the older companies are doing great but the start-ups are having difficulties. Since 2009 companies in Belgium can seek help from a credit intermediary. He will help both parties, the company and the bank, to reach an agreement. First of all the credit intermediary will investigate the reason behind the denial of finance. Secondly he will try and find alternatives like leasing to help companies achieve their goals. Most common reasons for denying a loan are insufficient capital, debts or insufficient power to repay. However, ba...

Trade credit is actually a form of free credit given by your supplier. It is an agreement between seller and buyer where the buyer can pay at a later date without any fee. You might think, why would anybody do this?  The seller will have to wait before he has the money in his pocket. Imagine what he could have done with this money . For instance keep the business going by buying goods and supplies. This week I want to discuss the reasons why anybody would give free credit and how to minimize the chance of nonpayment. It is important to build relationships with your clients to ensure the future of the company. By giving them more time to pay, they can buy a larger quantity of goods which will benefit both parties. The reseller can sell more goods in the same period of time and will therefore experience growth. He will buy more goods than previously and therefore the company will grow as well. By giving the option of paying at a later date, will also form a bond of trust. T...

Hello fellow credit crunchers, This blog will contain a series of interesting topics which will handle on one hand a broad range of money market related topics and on the other hand some interesting actual trade credit related news of (Belgian) enterprises. Why will we elaborate for the biggest part on the Quantitative Easing policy and on trade credit related news? Our research paper will investigate whether the recent QE policy had any effect on the trade credit used in Belgian enterprises. If we might discover an effect we would like to tackle and elaborate on the scope and the properties of this effect. This week our team wants to share the announcement of the ECB that it will start smoothing its QE  policy in 2018! This decision will definitely have its effect on the European economy and probably have some cross-border effects, in which way will this smoothening affect our economies? Definitely some food for thought here. We have not chosen to title this post with "th...