Export factoring in global supply chain: information updating and convertible contracts

Abstract

In this article, we develop two export factoring models: recourse export factoring (RE) and non-recourse export factoring (NR), both incorporating credit risk and exchange rate risk. We also introduce a novel contract, convertible export factoring (CEF), which allows the supplier to switch from RE to NR (CR) or from NR to RE (CNR) at a designated time. We compare this contract with traditional export factoring contracts and assess the impact of updated exchange rate information on the supplier. Our findings indicate that when only RE and NR are available, suppliers often favor RE. Furthermore, CEF provides benefits to both the supplier and the buyer over traditional RE and NR contracts. For the supplier, the accuracy of updated exchange rate information can be beneficial, whether higher or lower. Similarly, the optimal timing for contract conversion may vary, making either an earlier or later conversion advantageous.