Financing Newsvendor with Trade Credit and Bank Credit Portfolio

Yue Zhang, Bin Zhang () and Rongguang Chen
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Yue Zhang: Lingnan College, Sun Yat-sen University, Guangzhou 510275, China
Bin Zhang: School of Business, Sun Yat-sen University, Guangzhou 510275, China
Rongguang Chen: Lingnan College, Sun Yat-sen University, Guangzhou 510275, China

Mathematics, 2025, vol. 13, issue 9, 1-25

Abstract: Trade credit is a crucial component of supply chain financing, enabling businesses to manage cash flow and optimize inventory levels. This study delves into the application and implications of multiple trade credit types with different repayment periods and financing costs in a supply chain, encompassing short-term trade credit concatenated with bank financing, long-term trade credit, and a trade credit portfolio. Using a two-stage newsvendor model, we analyze the impact of different trade credit types on supply chain profitability under various scenarios. When facing multiple trade credit types, the retailer prefers financing from the trade credit type that has a lower marginal cost, and the resulting form of financing ensures an equal expected cost of each financing type. The analysis shows that in the case of a monopoly supplier, a long-term credit supplier’s profit is higher than that of a short-term credit supplier. Meanwhile, when the bank interest rate is sufficiently high, the retailer’s profit is highest under the trade credit portfolio mode, whereas when the bank interest rate is sufficiently low, the retailer’s profit is highest under the single short-term credit model. Comparing the effects of different financing modes, we find that there is no optimal financing mode for the overall profit of the supply chain.

Keywords: supply chain management; trade credit; inventory management; supply contract; capital-constrained (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2025
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