Forecasting construction materials suppliers' financial turnover

Abstract

Through the credit they furnish, materials suppliers provide a form of working capital for most construction contractors. This paper considers the implications of this for crediting organizations (i.e. suppliers). It is shown that a supplier's financial turnover movement (or lack of it) can be modelled and predicted with some accuracy by considering a number of characteristics of their credit control department. The models are developed from analysis of data obtained from a survey of 55 UK materials suppliers' credit control and debt collection procedures. The statistical technique of multivariate‐discriminant analysis (MDA) is used. Predictive accuracy of the models is tested on an independent, hold‐out sample of 10 suppliers' characteristics. It is found that ‘risk‐taking’ suppliers who protect themselves from bad debt by using insurance; suppliers who employ a third‐party organization to evaluate potential debtors' creditworthiness; and suppliers who service only one construction trade with materials, achieve significantly greater financial growth than those suppliers who do not exhibit these characteristics.

Citation

NICHOLAS, J., HOLT, G.D. and MIHSEIN, M. (2000), "Forecasting construction materials suppliers' financial turnover", Engineering, Construction and Architectural Management, Vol. 7 No. 3, pp. 221-231. https://doi.org/10.1108/eb021147