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A Note on the Price of Trade Credit

Managerial Finance, Vol. 37, No. 6, pp. 565-574, 2011

Posted: 25 Jul 2010 Last revised: 16 Nov 2011

Astrid K. Chludek

University of Cologne - Cologne Graduate School in Management, Economics and Social Sciences

Date Written: October 14, 2010

Abstract

In contrast to common literature that suggests that trade credit is an extremely expensive source of financing with annual interest rates exceeding 40 percent, this paper argues that the average interest rate of trade credit does not exceed the cost of alternative funds, with estimated average interest rates of 4 to 6 percent, thereby explaining why trade credit constitutes a substantial part of the optimal financing mix also of large, liquid, and capital market listed firms.

Keywords: Trade Credit, Short-Term Financing, Days Payable Outstanding

JEL Classification: G30, G32, G39

Suggested Citation

Chludek, Astrid K., A Note on the Price of Trade Credit (October 14, 2010). Managerial Finance, Vol. 37, No. 6, pp. 565-574, 2011 . Available at SSRN: https://ssrn.com/abstract=1648466

Astrid Chludek (Contact Author)

University of Cologne - Cologne Graduate School in Management, Economics and Social Sciences ( email )

Richard-Strauss-Str.2
Cologne, 50931
Germany

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