EXPRESS: The Hidden World of Trade Credit: The Flexibility Role of Late Payments

Trade credit is a dominant source of short-term financing in supply chains, yet little is known about how firms repay trade credit in practice because data on realized payment timing are rarely available. Using a unique dataset from Dun & Bradstreet that contains supplier-reported late payment records, we examine how firms manage payment timing in their supply chain relationships. We propose and empirically support a framework that distinguishes between flexibility-driven and distress-driven payment delays. Firms with greater downstream cost-shifting needs, proxied by longer accounts receivable days, are more likely to delay payments to suppliers; this association is primarily observed among financially healthy firms. Payment delays are typically short-lived, whereas persistent delays are uncommon and more likely to be associated with supplier enforcement actions such as litigation or relationship termination. Operational outcomes also differ: late payments are associated with lower profitability, while financially healthy firms maintain stable inventory turnover but distressed firms exhibit higher turnover. These findings highlight the flexibility role of payment timing in trade credit and its implications for supply chain financing.