Engaging Customer Preference Through Trade Credit: An Investigation of the Impact of Payment Terms on Brand Equity

Since organizations rarely collect immediate payment from business-to-business sales, trade credit structures financial and sales relationships between suppliers and customers (Asselbergh 1999). In this context, managing days’ sales outstanding (DSO), or the average number of days a company takes to collect revenue from business customers after a sale, represents a critical financial and marketing issue. If DSO indicates how quickly a company turns sales into cash (Bragg 2005), its extension also favors business opportunities and product quality demonstration when more generous payment terms are granted to customers (Emery and Nayar 1998; Smith 1987). Thus, trade credit can be viewed as a lubricant that facilitates sales through the attraction of customers’ business (Cheng and Pike 2003; Emery and Nayar 1998), or the signal of brand quality through additional time for the customer to test the product (Long et al. 1993). This research examines the extent to which credit terms offered by salespeople influence customers’ average payment delay and their perception of the supplier’s brand equity (i.e., brand attitude, brand trust, brand preference).