Supporting small suppliers through buyer-backed purchase order financing
Boray Huang,
Andy Wu and
David Chiang
International Journal of Production Research, 2018, vol. 56, issue 18, 6066-6089
Abstract:
This paper considers a creditworthy buyer who has two supplies: a low-cost but capital-constrained unreliable SME (small and medium-sized enterprise), and a high-cost but reliable backup source. The buyer may consider a novel financing mechanism named BPOF (buyer-backed purchase order financing) for supporting the SME indirectly. Under the BPOF scheme, the buyer provides partial or full guarantee to share the bank’s financing risk thus facilitate the SME’s loan application. To balance the risk with the benefit due to BPOF, we specify the conditions under which BPOF works and identify the properties of the buyer’s optimal strategy for sourcing and guaranteeing jointly. Generally speaking, a rational buyer’s guarantee should positively correlate to her product margins and the suppliers’ reliability. Finally, we claim when the risk-adjusted wholesale price is sufficiently low, dual financing (BPOF and subsidy) should be suggested.
Date: 2018
References: Add references at CitEc
Citations: View citations in EconPapers (12)
Downloads: (external link)
http://hdl.handle.net/10.1080/00207543.2018.1454614 (text/html)
Access to full text is restricted to subscribers.
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:taf:tprsxx:v:56:y:2018:i:18:p:6066-6089
Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/TPRS20
DOI: 10.1080/00207543.2018.1454614
Access Statistics for this article
International Journal of Production Research is currently edited by Professor A. Dolgui
More articles in International Journal of Production Research from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().