Sellers who extend trade credit to their business customers choose whether to integrate the management of trade credit or to enter into specialized factoring contracts. Using original data from a broad cross-section of firms we test a model of this decision. The model is based on a theory of the firm that stresses transactions costs (including information costs) as determinants of vertical integration. Consistent with expectations, we find that specificity of assets to the buyer-seller relationship is negatively related to the decision to factor and that factors are more likely to be used when information and monitoring costs are high.