Analysing the Effect of Trade Credit on the Financial Performance of Listed Manufacturing Firms in Nigeria

Trade credit, as an alternative to bank financing, represents an important financing tool for listed manufacturing firms in Nigeria, yet its effect on corporate financial performance remains empirically understudied in the Nigerian context. This study empirically analyses the effect of trade credit on the financial performance of listed manufacturing firms on the Nigerian Exchange Group for the period 2014 to 2022. Trade credit was measured by accounts payable days, accounts receivable days, and net trade credit position. Financial performance was measured by return on assets, return on equity, and earnings per share. Control variables included firm size, leverage, current ratio, sales growth, and industry category. Panel data regression with random effects was employed, following the Hausman test. Results showed that accounts payable days had a significant positive effect on return on assets (coefficient = 0.004, p < 0.05), indicating that extending payment periods to suppliers improved short-term profitability. Accounts receivable days had a significant negative effect on return on equity (coefficient = -0.007, p < 0.01), suggesting that excessive credit extension to customers impairs returns. Net trade credit position (payables minus receivables) was significantly and positively associated with earnings per share. The study fills a gap in the Nigerian trade credit-performance literature, and concludes that optimal trade credit management, favouring extended payables over receivables, improves the financial performance of Nigerian manufacturing firms. Working capital optimisation policies are recommended. Keywords: trade credit, financial performance, accounts payable, accounts receivable, Nigerian manufacturing firms