Trade credit drives firms to rely on suppliers for financial lifeline.
The article explores how companies use trade credit and collateral in their financial transactions. It suggests that firms with available bank credit often use trade credit to sell off assets quickly. The type of goods purchased affects the amount of trade credit used. Suppliers offer more credit for services than for goods. Suppliers provide goods as collateral but not cash. Using more tangible assets leads to more trade credit. Stronger creditor protection reduces both trade credit use and tangible assets.