Abstract: Previous theories concerning trade credit often fall short of single point of views. This paper seeks to set up a relatively comprehensive trade credit term decision model containing financing,marketing and cost factors under a bilevel programming framework which can embody the idea of incentive compatibility. Based on the analysis of supplier's and retailer's modeling,the bilevel programming is equivalently reduced to a nonlinear programming. Three key influencing factors on the incentive compatible credit term decisions are abstracted after detailed analysis of the constraints and objective function,that is,financing capacity,marketing demand sensitivity and cost structure. Then numerical experiments are conducted in different scenarios of these three factors to reveal how they impact on the final decisions. Finally,two kinds of empirical simultaneous equations to avoid endogenous are set up in perspectives of supplier and retailer respectively to test what theoretical models and numerical experiments predict using a sample of SME from China It is proved that trade credit is an important incentive-coordination-allocation mechanism;its decision is an interactive process with multiple facets of cooperation having impacts on;and fund co st is the most concerned factor for supplier to choose credit term,while marketing demand factor influences(SME) retailer's payment timing mostly.

Key words: trade credit, credit term, incentive compatible, bilevel programming, endogenous