Financing from Customers for Small and Medium Sized Enterprises and Managing Financial Risks: The Role of Customer Relationships

This study investigates how Chinese Small and
Medium-sized Enterprises (SMEs) manage financial risks in financing
from customers from the perspectives of ethics and national culture. A
grounded theory approach is adopted to identify the causal conditions,
actions/interactions, and consequences. 32 interviews were conducted,
and systematic coding methods were used to identify themes and
categories. This study found that Chinese ethical principles, including
integrity, friendship, and reciprocity, and cultural traits, including
collectivism, acquaintance society, and long-term orientation, provide
conditions for financing from customers. The SMEs establish trust based relationships with customers through personal communications
and social networks and reduce financial risk through diversification,
frequent operations, and enterprise reputations. Both customers and
SMEs can get benefits like financial resources and customer
experiences. This study creates a theoretical framework that connects
the causal conditions, processes, and outcomes, providing a deeper
understanding of financing from customers. A resource and process
capability theory of SMEs and a customer capital and customer value
model are proposed to connect accounting and finance concepts.
Suggestions are proposed for the authorities as more guidance and
regulations are needed for this informal finance