Supply chain financing theory of the trade payables–performance link

The existing empirical literature provides conflicting explanations of the relationship between trade payables and financial performance, highlighting a gap in understanding the nuances of this relationship. This article proposes a novel theory based on empirical evidence that re-examines the trade payables–performance linkage and explores the role of supply chain finance (SCF) as a critical moderating variable. Using a comprehensive methodology that integrates face-to-face interviews, web scraping, desk research, and econometric modelling, we identify the previously overlooked but significant factor of the implicit cost effect. Overall, the results suggest that SCF significantly modifies the relationship between trade payables and performance, and that SCF buyers are more likely than non-SCF buyers to achieve positive financial outcomes from extending trade payable terms due to the implicit cost effect. This research resolves existing theoretical discrepancies and provides deep insights into the dynamics of trade payable terms and the role of SCF. In addition, the study offers significant practical implications by informing corporate decision makers about strategies to optimise a supply chain’s working capital efficiency in order to improve financial performance.