1France today (2018) has one of the largest volumes of trade credit (TC) in Europe. The fact that it shares this position with the other Mediterranean countries suggests a need for a wider explanation for the phenomenon. The low level of legal protection afforded creditors (secured or not) does more than just oblige firms to find creditors other than banks to cover the cost of their supplies, in keeping with a classic model. When associated with the high risk of transactions in this part of Europe (especially its southernmost part), it also forces suppliers to protect the accounts receivable created by sales with guarantees established by way of exchange law (where the accounts receivable take the material form of bills of exchange) and the relational nature of the contracts created by long payment terms.1

2However, the overwhelming weight of institutional and anthropological data should not eclipse the tensions and debates surrounding TC in each country, and thereby the set of players involved. In Germany and the United Kingdom, to take the example of two very different legal, institutional and cultural systems, pressure from stakeholders (large businesses – LB hereafter – and banks) drove changes to the TC rules in the late 19^th century, which curtailed their use, at least domestically. In France, it was not until the late 20^th century that the role of TC came to be debated and criticised: the serious economic crisis of the 1970s laid bare the defects of this type of financing (chain bankruptcies, inflationary nature of TC, it’s role as an obstacle to effective monetary policies, high financing cost and poor capital allocation).2

3The revelation of the volume of TC by economists around 1980 raised the question as to the precise nature of its role in the economy, particularly in the preceding growth and modernisation phase (the French Golden Age 1945-1975). The scanty statistical data available3 suggests that this type of credit was important for growth during the Golden Age. Having held steady at a high level from the late 1950s to the late 1960s (hovering around 20% of assets and 17% of liabilities), the share of trade credit in industrial and commercial LB balance sheets shot up (Figure 1). This upsurge from the late 1960s to the early 1970s was sharper for trade credit receivables (payment terms and advances) than for trade credit payables (payment terms and advances), and doubled the total TC balance: from 1966 to 1974, the total rose from 2.4% to 5% of balance sheets. The 1975 downturn, which was sharper for trade credit payables than for trade credit receivables, drove this balance up to 5.8%.4

Figure 1. Trade credit in France during the Golden Age5 (average value as a % of balance sheets)

4This trend broadly reflects the development of trade credit in business purchases and sales: stagnation in the early 1960s, growth at the turn of the decade, and ultimate downturn in 1974‑75 (with the second credit controls) when cash flow problems shortened payment terms.6 In the medium term, the growing role of businesses as net lenders firmed up as payable terms were cut back sooner and shorter than receivable terms.7 So after accompanying business growth for a large part of the post-war Golden Age TC appears to have become a growth driver. Yet the rising role of non-financial firms as bankers came at the cost of a weakening in their cash flow and substantial short-term bank debt (see below).

5The enduring importance of TC and the growing role of non-financial firms as net lenders reflects the pressures on firms’ financing during the Golden Age. Exactly how did TC work? Who did it benefit? Who bore the cost of it? The absence of any criticism prior to the late 1970s appears to give credence to the hypothesis of its utility, if not its economic effectiveness. Three points will be considered to answer these questions: stakeholder positions, the role of TC in financing firms, and the excesses it caused.

Stakeholders positions

6The banks have often been held responsible for the volume of TC in France.8 This argument is based on the particular status of the bill of exchange which, uniquely in Europe, is a debt collection and guarantee instrument and a bank financing and refinancing instrument all in one. The bill gives creditors the advantage of an easy and extremely secure way of collecting on receivables (especially if the bill is “accepted” by the debtor and is presented by a bank). It also constitutes a real “‘entitlement’ to bank lending” as low-cost credit that protects trade secrecy and independence with respect to the banks. The bill “preserves sufficient payment flexibility” for debtors (by means of the play of deferred settlements). Lastly, for the banks, it provides a secure and extremely liquid investment. However, it is credit over which the banks have little control (since it is granted by suppliers) and it bears a very low return to banks9.

7The banking system’s move into discounting dates back to the turn of 1880 when the new major commercial banks started to develop their bank branch networks. Most of these banks found that their Parisian roots and highly centralised organisation (derived from the government model on which they were partially based) made them incapable of developing direct credit facilities outside of the small circle of close LBs. With the exception of Crédit Lyonnais, the only major bank to have started as a regional set-up (as with the German and English banking model), the new major banks did not have a command of the information and oversight instruments needed to grant direct credit to regional businesses.10 The network’s profitability therefore took the form of receivable financing: by discounting bills drawn on the buyer, they trusted in the information from the supplier (who was in effect the banker) and the guarantee provided by the signatories and exchange law.

8This move was made easier by the young Third Republic’s tax policy: in 1879, Léon Say, close to banking circles, sharply reduced stamp duty on bills of less than 100 French francs. Drawing a bill therefore became a more economical way of collecting small receivables than presenting an invoice.11 This ground-breaking measure permanently bestowed the manna of small bills on the banks. Whereas portfolios in other European countries tended in the late 19^th century to be increasingly restricted to large bills drawn on international trade and capital movements, portfolios in France assumed a two-part form12 that lasted into the 1960s.13 The shift was also facilitated by Banque de France policy, which ensured the entire system’s liquidity with the easy rediscounting of paper. The condition for this was the commercial nature of the paper, determined by practices whose basic principle was that suppliers were not to become their customers’ benefactors. To be sure that the business committed its capital, the commercial draft’s tenure had to be shorter than the length of the manufacturing cycle.14 The Banque de France’s confidence in the system became evident when it launched a campaign after the First World War to insist on the use of TC and discounting in the three départements of Alsace Lorraine, where the German model of cash payments and bank overdrafts had hitherto dominated.

9There is no doubt that discounting facilities fostered the development of TC. On the eve of the First World War, domestic trade payments in France were made either by payments in “cash” within 30 days (which actually represented a credit of 45-60 days, since the period only started the month following the month of delivery) with a 2% discount (reduction) or, more rarely, by acceptances with maturity dates of three months – potentially renewable – for semi-finished product activities with long lead-times between the purchase of the raw materials and the sale of the end product (such as in the case of the Lyonnaise silk mills).

10However, we also need to consider the specific role played by the banks. Although firms knew that discounting facilities gave suppliers the assurance that their trade credit receivables could be turned into bank credit, discounting accounted for just a small share of TC by the end of the Golden Age. Across industry in 1975, nearly 70% of trade credit receivables did not take the form of bills and approximately half of the bills used were not discounted.15 This small proportion was probably due partly to a downward trend triggered by the diversification of banking services (appearance of new types of credit), new practices (the December 1955 practices aimed to restrict borrowing against trade credit) and monetary restraint policies: the two credit control policy periods brought the share of discounting down from 26.7% of trade credit receivables (1969) to 20.5% (1975).16 Yet other reasons came into play to restrict the possibilities to turn trade credit into bank credit. Already at the start of the 20^th century, “merchants and manufacturers in most cases only drew bills when the need for credit forced them to use discounting.”17 In addition, from the interwar period, many debtors were reluctant to see the bills they had signed circulating and being presented by the banks. In addition to customer reluctance, there was the ponderous nature of managing sale and purchase ledgers (Saint Gobain had 20,000 industrial customers in the interwar period).18 This resistance prompted proposals (eventually) for short-term credit reforms that challenged the principle of TC: proposal by Jacques Mayoux (1978), Chairman of Sacilor, to create the all-purpose credit facility distributed by a principal banker;19 and the proposal by Pierre Falcon (1978 & 1980), Financial Director of Rhône-Poulenc, supported by some 30 LBs, to create buyer credits designed to finance the purchase of material. Yet these projects fell through, victims of staunch opposition by the major banks (nationalised or otherwise).20 Behind the reasons put forward by the banks to defend the discounting and TC system (support for SMEs, etc.) lay the persistent problems they had in learning and managing their lending activities.21 It is symptomatic that, despite criticism from the Gilet Commission (1966) of the place of discounting in the credit structure (high management costs for the banks), the only reform actually introduced to modernise short-term credit techniques ultimately consolidated TC: the trade receivables mobilisation credit (crédit de mobilisation des créances commerciales – CMCC) eventually introduced effectively did nothing more than replace the bill with invoices issued as a basis of credit.22

11The major banks’ dependency on discounting therefore led them to put a brake on the changes that threatened TC. And yet the period from 1946 to 1975 saw the large French banks’ slow technical and organisational adjustment to their activities.23 After attaining 42.2% of short-term bank credits in 1954‑55 and 43.5% again in 1958 (the credit restrictions having been met by longer supplier payment times, lighter stocks and an increase in commercial drafts from the banks),24 all commercial drawings slowed to just 34.4% in 1962 (and 33.9% in 1973). The banks’ learning curve with respect to the risk of direct credit was facilitated by nationalisation of the four leading establishments in 1945 (which effectively eliminated the risk), and the creation of new types of credit also discountable with the Banque de France (specialised credit and cash credit). However, the change was slow and incomplete.

Financing firms

12The second factor in the explanation of the importance of TC is its role in financing firms and especially those businesses that lacked finance due to their being on the fringes of the economic modernisation spearheaded by the government. This role was filled by both the financial transfers made by TC and its encashment by means of discounting.

Figure 2. Median length of trade credit receivables and payables in 1975 (number of months)25

Figure 3. TC balance by business size26 (payables‑receivables/monthly turnover)

Financial transfers made by TC

13In the 1960s and 1970s, the financial transfers made by TC (the net TC balance before or after advances)27 flowed from upstream sectors to downstream sectors and from SMEs to LBs (Figures 2 and 3).

14The direction of these transfers explains the criticism made of large firms’ “power of domination”, especially in the retail sector. Yet this theory calls for some qualification for the period studied here. Through to the start of the 1980s, the extremely wide spread observed within each firm size and each sector suggests that other factors than size and sector determined the position of net lender or borrower. Still in 1981, the spread of the load of TC was determined primarily by the firms’ financial characteristics: net lender firms were not “dominated”, they were just financially sounder (hence less risky) than net borrowers, which meant that they were able to redistribute the credit they received themselves (especially from the banks).28 This observation is borne out by the first studies by banking economists on the working capital requirement (WCR) and it’s financing. In 1975, net lending firms (i.e. firms that granted more trade credit to customers than the average and which received less trade credit from suppliers) were self-evidently in a better financial situation (higher rate of value-added, higher working capital and higher profits). Being less of a risk, they had easier access to bank credit than the net borrowing firms;29 the firms benefitting from specialised credit are a good illustration of this redistribution.30 However, “their average size does not differ significantly from the size of the beneficiary firms.”31 In this way was answered the National Credit Council’s call in the early 1950s for TC to serve to redistribute credit from the most well-endowed firms (the NCC was referring to supplier LBs that had access to rediscounting by the issuing institute) to the least well-endowed firms (customer SMEs).32

15Yet in the 1980s, the role of the firms’ financial characteristics was eclipsed by the sole criteria of firm size.33 The link weakened between the risk borne by firms and the direction of the financial transfers made by TC.34 With the advance of concentration, especially in the retail sector, the power of domination became increasingly obvious. The LBs were now being financed by medium-sized enterprises and, to a lesser extent, small businesses. Advances included, LBs ranked as net borrowers, while medium-sized firms were net lenders. And the gap could be observed across all sectors of industry. The power of domination was particularly marked in sub-contracting: either the sub-contractor’s net burden was greater than other firms or it was less favourable when, in exceptional cases such as in the automobile industry, this burden was negative.35 In brief, with TC mass retailers were now financed by industry and industrial LBs and contractors were financed by SMEs and sub-contractors. Yet prior to the 1980s, there was nothing to suggest that SMEs had been systematically penalised by the redistribution brought about by TC.

The trade credit mix: the role of discounting

16The same picture applied to the discounting of commercial paper. In the N 35 classification, the net balance of trade credit (excluding advances) in industry was always negative. Although strongly intercorrelated at firm and sector level, the volume of credit granted to customers was higher than credit received from suppliers and the resulting burden was especially heavy when the sector was upstream and the size of firms was small or medium (Figures 2 and 3),36 which forced SMEs to reduce their WCR (by means of faster stock rotation, for example).

Figure 4 (1^st graphic)37. The trade credit mix in 1969

Figure 4 (2^nd graphic). The trade credit mix in 1975

17Part of the mix was provided by the play of advances (prepayments: figure 4). The constantly positive balance of advances and down payments played an important role in sectors with long production cycles (construction and civil engineering, and capital goods). Advances from customers (often the government) made shipbuilding, aircraft, arms industries, and electrical engineering beneficiaries of TC (they were net borrowers). Yet, as with payment terms, the LBs benefited more than the SMEs38 (whereas they already bore the lowest net trade credit burden).

18It is at this level that discounting lightened the net TC burden borne by certain firms. Although discounting only represented a small share of trade credit receivables, the proportion varied by sector and firm size. Firms producing consumer goods encashed their customer receivables more extensively than firms producing intermediate goods and capital goods. From 1969 to 1975, the median proportion of discounted receivables in consumer goods hovered between 32% (textiles) and 43% (leather). In capital goods and intermediate goods, it rarely exceeded 30% (35% in the automobile industry, 37% in paper, 32% in glass and 31% in primary metal manufacturing).39 The importance of discounting was not reserved for the traditional industries; at the height of industrial restructuring in the 1960s, LBs such as Souchon-Neuvesel made massive use of discounting combined with intra-group advances.40 Yet it was much more related here to the net TC burden than in other sectors, such as the automobile industry.41 It was also more related to the firms’ financial resources. Although LBs made as much use of discounting as SMEs in certain industries (textiles-clothing, paper and automobile sectors), the share of discounting was much higher among SMEs than LBs in other industries, especially certain traditional consumer goods sectors (leather-footwear, wood-furnishings and knitwear).42

19The role of discounting in traditional sector SMEs is extremely important in understanding how some of these firms managed to modernise during the French Golden Age. Cut off from most priority financing and prevented by their manifest financial fragility from accessing direct credit from the banks,43 they turned to the most traditional credit techniques, which were the cheapest and least controlled.

20Firms that could not offset their trade credit deficit by means of either advances or discounting sought to find a balance in working capital (on the downturn since the mid-1960s due to the strength of investment) and cash credit (on the rise, driven up by the prominence of TC from 1970 to 1975). For an equivalent WCR, it was the capacity of the firms to obtain the support of partners or shareholders that determined the level of cash credit, as shown by the contrasting cases of the aircraft industries (well supported by their shareholders) and the shipyards (which, conversely, had to rely on the banks) in the early 1970s.44

The bill system’s developments and excesses

21A study of the Banque de France’s portfolio shows that the continuing importance of TC and its widespread acceptance cannot be explained solely by the classic services provided to firms. The trend was also due to the huge development in the use of bills, mainly up to the turning point of 1956-1958.

22Some technical developments were made deliberately to spread TC. For example, the indirect discounting technique (also called “supplier” paper) opened up trade credit receivables to suppliers who would not have been able to borrow against their receivables; this technique enabled a large business to pick up the bank charges borne by its many suppliers-drawers and negotiate them directly with its own bankers. This process appears to have taken off in the 1950s to the extent that the December 1955 customs and practices specified rediscounting conditions (prior authorisation from the Banque de France and the assurance that the drawer was not discharged of his risks).45

23Yet development was above all managerial and political. As a consequence of the huge flexibility accorded to the circulation of bills and their content, the bill system positively mushroomed to the benefit of all types of firms.

Intra-group trade credit and “inter‑branch” credit: “supervision without discrimination”

24A study of bill signatures (principal and endorser) reveals that a large proportion of commercial bills circulated between firms connected by equity links or personal relations. The connection between groups and TC is no coincidence. On the one hand, the formation of groups was sometimes due to the transformation into holdings of trade credit receivables concealing a covert partnership.46 On the other, membership of a group tended to raise the level of trade credit available: by the end of the Golden Age of growth firms belonging to a group had longer average customer terms than independent firms and shorter supplier terms, making their net burden of trade credit (excluding advances) twice as heavy (35 days on average as opposed to 18 days in the 1969-1974 period), due essentially to intercompany relations.47 Therefore, the financial function of groups in France was not restricted to shareholdings and financial credits (even though these items doubled in LB balances from 1956 to 1967)48, it also extended to trade terms.

25The importance of the bill was found as much in large industrial groups in the modern sectors (Boussois-Souchon-Neuvesel in Lyon, Société Alsacienne de Constructions Mécaniques in Mulhouse, Merlin-Gérin in Grenoble) as in regional groups of family-owned SMEs positioned in the more traditional sectors (Éram in Cholet, Prouvost and Motte in Roubaix, Schaeffer et C^ie in Mulhouse). However, the motives were different. For large modern industrial groups, which benefited from extensive financing possibilities, the use of TC and bills was essentially a way to cut the cost of cash flow and avoid the controls="true" to which most credit was subject. Intra-group credit tended “frequently to replace credit, whose granting should be restricted and use supervised, with the uncontrollable issue of more or less justified paper.”49

26In the case of SME groups in the traditional sectors, the crucial importance of TC was greater still and the question could be asked as to whether the bill’s utility in financing the firms was not directly behind their clustered growth. The surge in the number of firms observed in certain textile centres such as Roubaix and Mulhouse around 1950 can be explained less by technological or commercial innovation than by the possibility at each stage of production (trading, combing and carding, spinning and weaving in the wool trade) of drawing a three-month bill on the downstream stage (if not the upstream stage or the same stage in the case of “inter-branch” drafts) “even if processing only took one month.”50 The mere fact of setting up a sales subsidiary, as with Éram or the wool businesses in the North, or “transferring” part of production to a manufacturing subcontractor set up for the purpose, able to work on the same premises as the contracting parent company, such as was the case of combing in Roubaix, generated their own bills and hence bank credit.51 The bill offered “these industrial groups considerable financing possibilities.”52 In 1956, at least 42% of the Motte wool group’s commitments were intra-group credits.53 The group was sometimes supplemented by more collective arrangements, such as a purchasing subsidiary in the Alsace cotton industry designed to create paper between “processing” members and the purchase centre.54

27However, intra-group TC was prohibited by Banque de France’s customs and practices; transfer of ownership of the merchandise sold was a condition of rediscounting. In practice, the Banque de France’s branches handled this type of paper as and when local circumstances required. In Roubaix, the family-owned wool groups were so interconnected that it was not possible to “qualitatively supervise group paper”; quantitative controls="true" were themselves very difficult with respect to certain groups (Motte and Prouvost).55 In Mulhouse the stronger structuring of the cotton groups meant that discounting could be restricted to bills between parent company and minority-held subsidiaries. Yet exceptions were not rare.56 In Grenoble, the omnipotence of the large capital goods producer groups apparently prevented any limitation on group paper; all that officially counted was the “commercial nature” of the draft.57 Everywhere, laxity was the prevailing rule, especially when the bill served to modernise the sector. As an internal Banque de France report wearily put it, “… the Bank has not been inclined to always refuse applications seeking to replace financing by credit with financing by commercial bills… accepting as much the principle of bogus companies, for the sole purpose of creating a signature, as the proliferation of intra-group drafts”; the note added by the Directorate General for Discounting (DGE) does more to confirm than deny: “It cannot be said that we accept the proliferation of intra-group drafts; we turn down such drafts every day.”58

28The 1955 reform of customs and practices prohibited the rediscounting of cross drafts and made intra-group TC subject to prior authorisation from the Banque de France, but the acceptance criteria seemed very modest (“a certain amount of independence” between firms, “balanced respective balance sheets” and “an explained purpose”).59 The circulation of group bills was now better regulated: in Alsace, for example, cross bills between parent companies and subsidiaries were replaced with unilateral drafts (as between SCAM and Alsthom).60 Yet group bills long remained in the Banque de France portfolio (as in Roubaix, in 1957, where they were “to be supervised… not discriminated”)61, sometimes in total breach of the rules. At Neyrpic, for example, a major turbine producer and Alsthom subsidiary, “Bank remittances quite frequently include large unsubstantiated drafts from Alsthom. Failing an answer from the DGE to its memorandum of 15 February 1957, the branch continues to allow… these bills… which can be considered to be intra-group drafts.” The end of Banque de France automatic rediscounting in 1971 was to further limit its control.62

29The management of inter-branch credit, credit between firms in the same sector working as sub-contractors, is evidence of the same abuse. This credit, authorised provided it was substantiated, gave rise to credit stacking, condemned by the inspectors of the Banque de France. Such was the case with the Bouchayer and Viallet drawings on Neyrpic, corresponding to sub-contracting work between firms linked by inter-connected boards of directors. To the concluding question put by the 1958 inspection, “One may wonder whether there might not be reason to systematically exclude from our discounting sub-contractors’ drafts on Neyrpic establishments as direct beneficiaries of credit corresponding to the entire sum of each current contract,” a note in the margin from the DGE responded, “No action to be taken.”63

30The extent of coordinated drafts reflected a deep crisis in the governance of the Banque de France expressed by, “the independence exhibited by some of our branch managers with respect to the Banque de France and its directives… This independence movement… was fuelled by a total absence of direct liaison and information [underlined in the text] between managers and the central Bank.”64 The DGE’s conspicuous silence, condemned by certain branch managers and even more so by inspectors,65 revealed the central Banque de France management’s discomfort at the idea of prohibiting local practices that facilitated the financing of strategic LBs. As if to justify these practices, the reports cautioned the low profitability of these firms due to the price freeze, such as the case with Alsthom and its subsidiary Neyrpic.66

Unsubtantiated bills: “We accept everything”

31This difficulty with curbing the movement was not restricted to the circulation of bills. It was also found in the nature of the operations that took the form of bills. Evident from its increasingly vague premises (delivery date and nature of goods sold), the bill’s loss of substance was multifaceted.

32Although the bill’s drawing and maturity dates were supposed to be close to the actual circulation of the merchandise, Banque de France inspectors found large discrepancies in practice. In Roubaix in 1947, for example, acceptances were drawn on dates that had less to do with the deliveries of raw wool than with the firms’ cash flow needs. In a town where banks were not given to granting overdraft facilities, “It was as if the firms had been given an overdraft.”67 This distancing of bill from merchandise, about which Gaston Roulleau had warned as far back in 1914,68 was also facilitated by the processing activity: “From the moment the merchandise is put into the machines, it loses any distinctive mark that could identify it and there can no longer be any question of any lien whatsoever for the acceptor.”69

33Behind this problem of dates lay the question of the bill’s content which, on many markets, no longer had anything to do with the sale of a good. Invoices made out to the contractor for toll-manufacturing processes (for example combing, spinning and weaving) were accepted for discounting. Yet the sub-contracting relationship was sometimes coupled with a subsidiary relationship, such that very large manufacturing groups were able to finance the entire manufacturing cycle with TC. 70After 1956-1958, however, these drafts tended to be increasingly selected according to the rate of value added by the manufacturer71 and the ownership relation between contractor and manufacturer.72

34Although capital goods were not self-liquidating, their sale could also give rise to the drawing of discountable bills in certain conditions.73 However, down payments made by customers when placing an order or during the manufacturing process (common practice given the length of the production cycle) could not take the form of discountable bills. Yet this is precisely what the large producers of mechanical and electrical capital goods in Grenoble (Merlin et Gérin, Neyrpic and Bouchayer-Viallet) set out to do. These firms, lacking substantial equity, based their development on systematic indebtedness, combining semi-public finance with TC (trade credit payables and customer advances). As their customer base of large nationalised enterprises (EDF, Houillères de France and Renault), followed by certain private firms such as Péchiney, no longer made down payments by cheque or bank transfer when placing an order or during the work in progress, but in the form of 90-day acceptances, the manufacturers and large nationalised credit establishments that supported them (they held “75% of the commercial risks of this kind”) set out to establish their discounting by the Banque de France. Having once been authorised to do so by the DGE (for Merlin et Gérin in 1956), the branch took it upon itself to make the practice of discounting these bills issued as down payments widespread (so no one would feel hard done by). The bills were issued without grounds to conceal their irregular nature.

35The debates that this practice triggered at the Banque de France show the extent of this abuse.

“It has to be said that the pretension [of the Grenoble manufacturers] are defendable:
“- First of all, because we constantly accept down payment paper without question in many sectors – such as mechanical engineering, the automobile industry and aviation – [“not officially” noted a member of the DGE in the margin];
“- Secondly, because we have accepted that bills may be drawn by manufacturers on les Houillères de France , SNCF and EDF without stating their grounds and may correspond as much to down payments as to sums due on delivery.
Neyrpic, Merlin et Gérin and others obviously cannot understand why we accept everything when it is these companies and why we only accept substantiated paper issued after delivery for the others.”74

36The prestige of the Grenoble businessmen (driven by “expansion worship”) and the strategic nature of their output explain the audacity of their methods and the extreme nature of their pretension,75 but the underlying reasons for the excesses lay elsewhere. In Grenoble, as in other markets, the Banque de France was having great difficulty adjusting to a new post-Liberation environment and especially to the nationalisation (of large client firms, banks and its own bank) that were totally reshaping accounting standards and both internal and external hierarchical systems. Incapable of promoting the reforms that could improve its management (like the public accounting reform), it was also sometimes powerless to counter the manoeuvring of stakeholders. There were the large national banks, which deliberately presented the Banque de France with 15-20 days bills (meaning they could not be rejected)76 or post-dated bills to bring them closer to delivery dates.77 And then there were the large strategic firms, highly influential locally (in Grenoble, the manufacturers were on the board of the Banque de France branch), but also in Paris. Caught between the liberal attitude of certain branch managers and the DGE’s embarrassed silence, the branch inspectors found it hard to call the situation to order.

37The developments and excesses of the bill’s role also reflected the contradictions surrounding the Banque de France and its own in-house changes. Its guiding principles obliged it to guarantee (officially at least) the commercial nature of the paper it discounted. These principles ended up making discounting the cheapest credit there was through the guarantees they brought to the bill. In a period of rare, expensive money, the differences in rates between discounting and the other types of credit prompted firms to rush en masse into discounting, and therefore TC.

“Given that the rates applicable to short-term credit granted by the banks display a large difference between commercial, or so-called commercial, discounting and bank credit, whether discountable or not, all financing now tends to take the commercial form, i.e. the cheapest.”78

38In effect in Grenoble, at the height of the credit controls="true" (July 1958), the minimum (cartelised) cost of credit to “choice clientele” was 6.35% for rediscountable commercial paper, 6.8% for discountable paper, 7.35% or 8% for non-discountable paper, and 8% and more for non-discountable overdrafts.79 Even after the 1971 reform, when discounted credit was no longer the usual refinancing instrument with the Banque de France, discounted credit remained the form of credit with the lowest nominal rate. The appeal of discounting led to its legal subversion.

39The pressure of demand was compounded by the changes underway at the Banque de France.

“Our managers think more in terms of financing cost than financing technique, losing sight of the fact that the vital function of the issuing Institute is to ensure the banks’ cash flow by discounting for them the paper of its choice, rather than to enable businesses to obtain financing from their bank manager on the best terms. This is the consequence of the Banque de France’s intervention in setting private rates. We think in terms of ‘cost of credit to the business’ rather than ‘bank cash flow’, when we should… consider credit for the business only from the perspective of risk.”80

Conclusion

40Trade credit has served many purposes for French non-financial firms: financing of high-risk firms by low-risk firms via direct financial transfers made by means of the terms of payment, and reduction in financing costs and access to relatively uncontrolled financing channels for the TC discounted with the banks. Although only a proportion of trade credit receivables were discounted, SMEs in the traditional sectors and large groups in the modern sectors made extensive use of it, sometimes at the expense of breaching the discounting rules. The commercial banks, for their part, found in it a way to perfect their traditional lines of business while learning more about the bank’s lines of business. In terms of these many purposes, discounting commercial paper could be seen as an advanced instrument of the “Republican synthesis” (Stanley Hoffmann), benefiting all and inconveniencing no one. The question remains as to the more general effects of TC on the performance of firms and the economy. Has the growing role of firms as financial intermediaries not penalised their own investment and led to a poor allocation of capital?