What You Sell Is What You Lend? Explaining Trade Credit Contracts

We relate trade credit to product characteristics and aspects of bank-rm relationships and document three main empirical regularities. First, the use of trade credit is associated with the nature of the transacted good. In particular, suppliers of dierentiated products and services have larger accounts receivable than suppliers of standardized goods and rms buying more services receive cheaper trade credit for longer periods. Second, rms receiving trade credit secure nancing from relatively uninformed banks. Third, a majority of the rms in our sample appears to receive trade credit at low cost.