This article presents the analysis of the determinants of the trade credit granted and received by a panel of 47,197 SMEs in Europe over the period 1996—2002. Our results show a strong homogeneity in the factors determining trade credit in European countries. On the one hand, firms with greater capacity to obtain resources from the capital markets, and more cheaply, grant more trade credit to their customers. Moreover, the results appear to support the price discrimination theory. We also found that firms react by increasing the credit they grant in an attempt to stem falling sales. On the other hand, larger firms, with greater growth opportunities and greater investment in current assets, receive more finance from their suppliers. Where firms have alternative sources of finance they are less likely to resort to vendor financing (substitution effect).
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