ABSTRACT

This paper examined the motives for trade credit use among the small scale businesses like poultry feed enterprises and leather product operators. As a credit extended by a seller who does not require immediate payment of delivery of a product to a buyer, like a short term loan it is an important source of "funds for business customer. Many small businesses that wouldn't qualify for traditional bank loans tap into trade credit instead because its readily available, eliminates down payments, improves cash flow and can be spread over months or even years. Relevant literatures were reviewed in which theoretical have linked the use of trade credit to a transaction motive that is the desire to realize economics in cash management and to financing motive that is the use of trade credit because credit from other sources particularly from financial institutions is limited. The instrument used in data collection was structured question which cover small business firms in Aba metropolis comprising poultry feed and leather product operators. The operators were selected at random. The method of data analysis involved the use of descriptive statistics such as tables and percentage for analyzing the yearly trade credit position of poultry feed and leather product and amount of purchases made. To determine trade credit composition of poultry. feed and leather product operators, the use of ordinary least square multiple regression analysis were in place. From the findings of the study, it was deducted that 65% of the poultry feed enterprises opted for transaction motive which implies that trade credit enables buyers to economize on the transaction costs associated with cash management and they are able to hold smaller cash balances and incur lower brokerage costs than they would if they pay invoice immediately upon receipt. 35% advocate for financing motive based on the limitation placed by financing institutions on the amount of credit extended to forms, and the refusal of financial institution in charging interest rates that is appropriate to the customers risk class. On the side of leather product users, 58.33% of the advocates transaction motive, while 33.33% goes for financing motive. The amount of credit extended to customers in naira range between 80,000 to 500,000 of different categories per month by suppliers in the enterprises of poultry and leather products operators in year 2010. Further analysis revealed the factors determining trade credit composition in the enterprise overall capital structure to include mark-up price, annual income, annual total sales, functional stores, total assets, sales experience, distance covered from store to . supply in kilometer and short term debts. It is recommended that first timers in both enterprises should took for trade credit to finance their first inventory, and improve cash flow in their growing businesses. Small businesses should form or join cooperative societies. That trade credit managers should regulate mark-up prices to maintain how rate and users of trade credit to build up their businesses adequately as to put an end to the debt instrument called trade credit.