Burkart and Ellingsen (2004) analyze trade credit as a form of in-kind finance, arguing that suppliers have an informational advantage over banks due to the nature of input transactions. They propose that trade credit and bank credit can be complements or substitutes, depending on the firm's debt capacity. Trade credit is more prevalent in less developed credit markets and is less cyclical than bank credit. The model explains why trade credit has short maturities and why large, unrated firms have more countercyclical accounts payable than small firms. Trade credit is less risky than bank credit because inputs are harder to divert than cash, and suppliers can monitor input transactions more effectively. The model also shows that trade credit can increase bank lending by allowing firms to invest more without reducing real investment. Trade credit is more valuable in countries with weaker creditor protection and when firms are undercapitalized. The model also explains why trade credit is more countercyclical for large firms and why firms with limited access to funds may offer trade credit to increase their investment. The model highlights the role of receivables as collateral in trade credit, and shows that trade credit interest rates are influenced by the cost of collateral and the risk of default. The model predicts that trade credit interest rates are generally lower than bank rates, but can be higher in certain industries. The model also explains why trade credit is more common in less developed economies and why firms with limited access to bank credit may rely more on trade credit. The model provides a comprehensive framework for understanding the role of trade credit in financial markets.Burkart and Ellingsen (2004) analyze trade credit as a form of in-kind finance, arguing that suppliers have an informational advantage over banks due to the nature of input transactions. They propose that trade credit and bank credit can be complements or substitutes, depending on the firm's debt capacity. Trade credit is more prevalent in less developed credit markets and is less cyclical than bank credit. The model explains why trade credit has short maturities and why large, unrated firms have more countercyclical accounts payable than small firms. Trade credit is less risky than bank credit because inputs are harder to divert than cash, and suppliers can monitor input transactions more effectively. The model also shows that trade credit can increase bank lending by allowing firms to invest more without reducing real investment. Trade credit is more valuable in countries with weaker creditor protection and when firms are undercapitalized. The model also explains why trade credit is more countercyclical for large firms and why firms with limited access to funds may offer trade credit to increase their investment. The model highlights the role of receivables as collateral in trade credit, and shows that trade credit interest rates are influenced by the cost of collateral and the risk of default. The model predicts that trade credit interest rates are generally lower than bank rates, but can be higher in certain industries. The model also explains why trade credit is more common in less developed economies and why firms with limited access to bank credit may rely more on trade credit. The model provides a comprehensive framework for understanding the role of trade credit in financial markets.