204 / 2024-04-23 10:50:45

Buyer financing in a pull supply chain with financing cost and delayed payment interest rate

supply chain management; early payment; reverse factoring; game theory

Small and medium-sized manufacturers frequently face dilemmas in accessing inexpensive financing. To mitigate the financing dilemma of such manufacturers, early payment and reverse factoring are considered alternatives to traditional financing modes. We develop a pull supply chain model using a Stackelberg game framework, where a capital-abundant retailer acts as the leader and orders from a capital-constrained manufacturer during the selling season. Three financing modes are explored in this study: bank financing and two types of buyer financing (early payment and reverse factoring). By comparing and analyzing the players’ decisions and their profits under these three financing modes, counter-intuitively, we find bank financing is analytically superior to buyer financing under certain conditions for the retailer, but it hurts the manufacturer. This problem can be effectively solved by buyer financing. Specifically, for the low-cost global manufacturing industries, early payment (reverse factoring) can be used to effectively solve such problems through the opportunity cost borne by the retailer (sharing the opportunity cost between the retailer and the bank). Moreover, for high-cost industries, reverse factoring is more effective than early payment. Our findings provide guidance and insight for supply chain participants to make informed decisions regarding the adoption of buyer financing strategies.