When trading, firms choose between different payment contracts. As shown theoretically in
Schmidt-Eisenlohr (forthcoming), this allows firms in international trade to optimally tradeoff
differences in financing costs and enforcement across countries. This paper provides
evidence from a large number of countries that shows that country characteristics are indeed
central determinants of the payment contract choice. As predicted, the use of open account
decreases in financing costs and contract enforcement in the source country. We extend the
theory and test two additional predictions. First, we show that the more complex the industry
of a firm, the more important is the quality of contract enforcement and the less important are
the financing costs for the contract choice. Second, we compare direct and indirect exporters
and find evidence that suggests that intermediaries play a relevant role in contract
enforcement across borders