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This chapter addresses these questions in a unified framework. A consensus exists that trade credit is most common among firms that face borrowing constraints. This follows from the assumption that trade credit is more expensive than bank loans. According to this view, reliance on trade credit should increase in credit rationing, but the empirical evidence is not generally consistent with this common belief. Large US firms (presumably less likely to be credit-constrained) rely more heavily than small firms on trade credit, with accounts payable averaging 11.6 percent and 4.4 percent of sales for large and small firms, respectively (Petersen and Rajan 1997). Similarly, in the Italian manufacturing sector, trade credit finances, on average, 38.1 percent of the