Why customer stability matters for business finance in China
YOUCONG CHAO, FANG HU, GUOWAN YAN AND JING YANG |
For many businesses, getting paid by customers is only part of the equation. Keeping the cash flowing between buying inputs and receiving customer payments can be just as important – and supplier credit can play a critical role.
New research into Chinese listed firms suggests that the strength and stability of a company’s customer relationships can influence how much credit its suppliers are willing to provide.
The study examines customer stability – the persistence of a firm’s major customer relationships – and its role in accessing trade credit, where suppliers allow businesses to defer payment for goods or services. Using a large sample of Chinese A-share listed firms from 2007 to 2023, the research finds that firms with more stable customer relationships receive significantly more trade credit from suppliers.
When customer relationships become a financial asset
Trade credit is an important source of short-term finance, particularly in economies where access to formal financial institutions can be limited. In China, accounts payable represents a significant share of corporate liabilities and can provide businesses with valuable short-term liquidity.
But why would a supplier be more willing to let a business pay later simply because it has stable customers?
The research points to three interconnected explanations.
First, stable customers reduce uncertainty. Businesses with persistent customer relationships are more likely to have predictable demand, sales and cash flows. For suppliers, this can mean less concern about whether a customer will be able to repay what it owes.
Second, stable customer relationships can reduce information asymmetry. Long-term relationships generate valuable information about downstream demand and the firm’s financial prospects. This can help suppliers make better assessments of a customer’s creditworthiness, particularly when publicly available information is limited.
Third, stability can strengthen bargaining power. When demand is more predictable, firms may be in a stronger position to negotiate favourable payment terms with suppliers.
Together, these factors can turn customer relationships into something more than a source of revenue: they can become a relational asset that supports access to finance.
Stability matters most when finance is harder to secure
The benefits of customer stability are not the same for every business.
The research finds that the relationship between customer stability and trade credit is particularly strong among firms with high customer concentration, greater financial constraints, and during periods of elevated economic policy uncertainty.
This suggests that stable relationships may be especially valuable when businesses face greater financial pressure or uncertainty. In these circumstances, the trust, information and predictability embedded in established customer relationships can help support access to supplier financing.
A broader lesson for supply chains
The findings shift attention towards an often-overlooked aspect of supply chain finance: the influence of a firm’s downstream relationships on its upstream financing.
Trade credit is more than a simple transaction between a supplier and buyer. It can reflect the wider network of relationships in which businesses operate.
For managers, the message is clear: investing in long-term customer relationships may deliver benefits beyond revenue and loyalty. Stable customers can help create more predictable business conditions and, in turn, improve access to informal financing.
For suppliers, understanding a buyer’s customer structure could also provide an additional dimension when assessing credit risk.
Ultimately, the research highlights the financial value of stability. In uncertain economic conditions, strong and enduring customer relationships may not just help businesses sell more – they may also help them finance what comes next.
AUTHORS
Youcong Chao is from North China Institute of Aerospace Engineering, China. Dr Fang Hu is an Associate Professor in Accounting at Griffith Business School, and member of the Griffith Asia Institute. Associate Professor Guowan Yan is from Chongqing University, China and Jing Yang is from Nanjing Audit University, China.
This article is a synopsis of the journal article: Chao, Y., Hu, F., Yan, G., & Yang, J. (2026). The role of customer stability in corporate trade credit provision. Pacific-Basin Finance Journal, 99, Article 103218. https://doi.org/10.1016/j.pacfin.2026.103218