Buyer Financing in Pull Supply Chains: Zero‐Interest Early Payment or In‐House Factoring?

Abstract

T his study investigates the efficacy of zero-interest early payment financing (alternatively referred to as early payment) and positive-interest in-house factoring financing in a pull supply chain with a capital-constrained manufacturer selling a product through a capital-abundant retailer. Early payment is the prepayment of a wholesale cost to the manufacturer, whereas in-house factoring is a loan service provided to the manufacturer by a branch financing firm of the same retailer. We find that the retailer prefers early payment financing to bank financing when the manufacturer's production cost is low. If the retailer instead offers positive-interest in-house factoring financing to the manufacturer, then the financing equilibrium domain enlarges as compared to bank financing. Interestingly, early payment financing can outplay positive-interest in-house factoring financing if the production cost is considerably low; otherwise, vice versa. When the production cost is big enough, the retailer will not provide either early payment or in-house factoring. Furthermore, our main qualitative result sustains with an identical wholesale price across all three financing schemes and the financing equilibrium domain of early payment shrinks as demand variability grows.

Impact of Green Credit Financing and Carbon Emission Limits on the Supply Chain Based on POF

“…Even if supplier financing cannot fully coordinate the supply chain-other financing schemes such as in-house factoring fully coordinate the supply chain-in situations where bank loans are attractive to suppliers, it is still considered a better financing mode. Similar conclusions can be drawn when the manufacturer's production costs are not too high or when the information about the known supplier is better than that of the bank [16,17]. Compared with bank credit, the trade credit model in the supply chain can more effectively alleviate agency conflicts and enable retailers to achieve optimal inventory strategies at a lower cost without excessive investment under bank credit [18].…”

“…Furthermore, the optimal strategy of the manufacturer and the non-green supplier satisfying (17) and ( 18) is shown below:…”

Production and Financing Strategies of a Distribution Channel under Random Yield and Random Demand

“…Second, considering a quadratic production cost function in our model, we find that the retailer is willing to offer APM with high production cost coefficient which is different from the situation where the production yield of the manufacturer is certain. In the retailer financing supply chain where the yield is certain and linear production cost is considered, the retailer has no incentive to offer finance the manufacturer when the production cost is substantially high [32]. ird, the retailer is willing to offer APM when the manufacturer's initial capital is low.…”

“…ey examined the impact of the retailer's loss aversion level on financing decisions. Chen et al [32] compared three financing schemes, i.e., zero-interest early payment financing and positive-interest in-house factoring financing in a pull supply chain where the manufacturer is capital constrained. ey found that early payment financing is more attractive than bank financing for the retailer when the manufacturer's production cost is low.…”

“…We assume that the manufacturer, as the Stackelberg game leader, determines the procurement price (similar assumptions have been used by Niu et al [41] and Chen et al [32]). In practice, Dongfanghong, one of the largest green onion packers in China, sets the wholesale price to the farmers.…”