Book2012

Trade Credit and Its Role in Entrepreneurial Finance

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Working Capital and Financial Performance Banking stability, regulation, efficiency Supply Chain and Inventory Management

Abstract

Recent research has found evidence of the central role of trade credit in the financing of small businesses. In the United States, for example, trade credit is used by about 60 percent of small businesses; such a large incidence of use is not observed in any other financial service except checking accounts. This article analyzes several aspects of the trade credit agreement. It starts by explaining why trade credit is such an extended phenomenon in spite of the existence of a specialized financial sector. Then it discusses several aspects that make trade credit a unique and not fully contractual arrangement, whose value depends to a great extent on the value of the commercial relationship between the supplier and the buyer. It then focuses on the value of trade credit for entrepreneurial firms.

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1997Microeconomics of Banking 2008Financing patterns around the world: Are small firms different?☆2006Trade Credit: Suppliers as Debt Collectors and Insurance Providers

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