Who should finance the supply chain? Impact of accounts receivable mortgage on supply chain decision

Yuxiang Cheng, Fenghua Wen, Yiming Wang and David L. Olson

International Journal of Production Economics, 2023, vol. 261, issue C

Abstract: We attempt to understand the role of accounts receivable mortgage in a capital-constrained supply chain and to capture the interaction of firms' operations decisions within non-cooperation or cooperation conditions based on different bank credit policies. We consider a short-term loan directly to the retailer as a supplement to accounts receivable financing. Given different bank credit policies based on the retailer's and manufacturer's original operational capacity, we identify optimal decisions in different situations, finding that supply chain efficiency is better attained using bank short-term loans. Generally, firms with high solvency order more compared to low solvency firms. Specifically, we find that the optimal sourcing choices depend on the ratio of the share of the manufacturer with the share of the retailer (RMR). When RMR is low, trade credit would be better for sourcing. Conversely, bank credit would be the better choice for a capital-constrained supply chain. Finally, we present empirical evidence to demonstrate the results of our study.

Keywords: Finance; Accounts receivable mortgage; Bank finance; Bankruptcy risk (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:261:y:2023:i:c:s0925527323001068

DOI: 10.1016/j.ijpe.2023.108874

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