Abstract:
This paper describes the relationship between trade credit and SME financial performance for a
sample of 50 audited Kenyan Small and Medium Enterprise firms. It discusses on how trade
credit affects three measures of financial performance namely; liquidity, profit margin and return
on assets. Documentary guide was used in the study to collect secondary data and the data
collected were keyed and coded into SPSS package version 20. Analysis was conducted using
both inferential and descriptive statistics specifically mean and standard deviation. Inferential
statistics where Pearson correlation coefficient to determine the degree of relationship while
Multiple regression model was used to test the hypotheses. Findings indicated that trade credit
positively affected liquidity, profit margin and return on assets. The results appear to be
consistent with pecking order theory by SMEs in pattern of using trade credit instead of other
external source of finance
