What we find is that customers discriminate against their suppliers when deciding which bills to pay. When COVID-19 hit, customers delayed payments to their suppliers with female or Black trade credit officers at a 10–20 percent higher rate relative to their payments to nonminorities.
I’ve been working on supply-chain research for the past 10 years, seeking to understand the risk involved in the payments process. In particular, what can a supplier do to mitigate the risk of customers not paying their bills? Collecting payments on time is critical to a supplier’s liquidity management. Yet, what I noticed is that there is a lot of unexplained variation in terms of when suppliers get paid. This got me thinking: Does it matter who the lead trade credit officer is, and, specifically, do white men get paid more quickly than their minority counterparts? We needed a setting where we could statistically capture these effects.
Yes. In normal times, a supplier has ways to punish a late-paying customer. The recourse can be to simply tell the customer, “I won’t sell you any more goods until you settle your bill.” These market-based disciplinary mechanisms keep payments in check and help to dampen the effects of discrimination on the payments process. But at the first onset of COVID-19, when suppliers wanted to make sales and there weren’t a lot of customers knocking on their doors, they couldn’t use these mechanisms. Therefore, if there is discrimination in payment decisions, we would expect it to show up more prominently during the pandemic.
Booth’s Michael Minnis and I used a data set of detailed trade credit networks with granular transaction-level data between suppliers and their corporate customers. We identified the lead trade credit officers in the data and characterized them as a minority or not, defining minority as either female or Black. On average, we find that suppliers with minority lead trade credit officers saw a larger increase in past-due accounts during the pandemic relative to suppliers with lead credit officers that were white men. Importantly, the granularity of our data allowed us to control for economic differences between minority groups and nonminority groups, which further allows us to attribute our results to discriminatory behavior.
We provide another important piece of evidence that certain groups face disadvantages because of their race and gender. In order to help address discrimination and the ways it might affect customers’ payment behaviors, we recommend antibias training programs and other interventions aimed at curbing the effects of explicit and implicit discrimination on important supply-chain decisions.
Anna Costello is professor of accounting at Chicago Booth.
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