An Investigation into Predicting Materials Suppliers' Profit Margins

Abstract

or the majority of construction contractors, materials suppliers provide an intrinsic form of working capital via the credit they furnish. Generally, in excess of seventy per cent of suppliers' turnover is accounted for by credit sales; thereby highlighting the importance of accurate contractor (creditworthiness) evaluation, and effective debt collection procedures. This research models suppliers' credit control and debt collection practices to predict the (average) annual profit that will result from purveying credit to a contractor. Suppliers must generate profit to ensure continued survival and retain investor commitment. Hence, understanding of potential profit enhancement would be welcomed, particularly, when one considers the volatile environment within which construction operates. Using multivariate discriminant analysis, data from a survey of UK suppliers' credit control and debt collection procedures is modelled. The developed MDA models portray good predictive performance (statistics), but their overall accuracy is hindered somewhat by the variability of the data; this results from the substantial differences in procedures implemented by suppliers' credit control and debt collection methods.