The Check Is in the Mail : Can Disclosure Reduce Late Payments to Suppliers?

A common corporate cash management strategy is to delay payments owed to suppliers. We examine whether buyers pay suppliers faster in response to a recent regulatory change in the United Kingdom that mandates the public disclosure of buyers’ payment practices. We find that after the regulatory change, UK firms subject to this regulation shortened their payment periods relative to several control samples of firms that were not subject to the regulation. In cross-sectional tests, we predict and find that this shortening of the payment period is attenuated for firms that are less able to bear the costs of paying suppliers faster. Specifically, we find that the reduction in the payment period is smaller for buyers that (i) have longer operating cycles, (ii) depend more heavily on trade credit as a source of external financing, and (iii) pay dividends. In supplemental tests using proprietary data, we find that buyers subject to this regulation reduced their trade credit that is overdue by 30 days or more. However, this reduction is partially offset by an increase in the trade credit that is overdue by less than 30 days. Our findings are important in light of the ongoing debate in other regimes (e.g., the United States) on whether to require additional disclosures of trade credit