Werner Henk Otto
Abstract
When considering the entrepreneurial value of SMEs while understanding their reliance on trade credit, the role of ethics in the credit agreement in either complementing debtors’ commitment to repayment or undermining it is accentuated. Insights into the essential role that ethics play in sustaining SMEs’ credit lending efforts could add value to improving their trade credit management efforts to promote liquidity and limit unprofitability associated with bad debt expenses. The study aims to determine the role of ethics in affecting SMEs’ trade credit management. The study employes a quantitative research design and purposive sampling technique targeting 10 450 formal SMEs across South Africa with data collected using the survey method by administering an online questionnaire. The results show a significant positive relationship between ethics and SMEs’ trade credit management effectiveness. The study contributes to the expansion of available literature concerning SMEs’ ethics and trade credit management determinants by emphasising the value of ethics towards improved trade credit management effectiveness. By showing the value of ethics in promoting trade credit management several recommendations are provided intended to promote liquidity and limit unprofitability.