Abstract
Supply chain finance has been gaining attention in theory and practice. A company’s financial position affects its performance and survivability in dynamic and volatile markets. Those that have weak financial performance are vulnerable when operating in environments that are uncertain and financially unstable. Companies adopt various solutions and techniques to manage, effectively and efficiently, the flow of money to and from its suppliers and buyers. Reverse factoring is an innovative technique in supply chain financing. This paper develops a joint economic lot size model where a vendor coordinates operational and financial decisions with its multiple suppliers through the establishment of a reverse factoring arrangement. The creditworthy vendor systematically informs a financial institution (e.g., bank) of payment obligations to selected suppliers, enabling the latter to borrow against the value of the relevant accounts receivable at low interest (borrowing) rates. The paper also presents a numerical example and a sensitivity analysis to illustrate the behavior of the model and to compare the economic and operational performance of a supply chain with and without a reverse factoring agreement. The results show that the establishment of a reverse factoring agreement within the supply chain improves the economic performance and impacts on the operational decisions.
Highlights
European Small and Medium Enterprises (SMEs) have been benefitting from the EU’s economic recovery
This paper proposed a joint economic lot size model in which a vendor coordinates operational and financial decisions with several suppliers through a reverse factoring arrangement with a bank as a third player
The results showed that the establishment of a reverse factoring agreement between the players in the supply chain increases the supply chain’s total annual profit and affects the operational decisions
Summary
European Small and Medium Enterprises (SMEs) have been benefitting from the EU’s economic recovery Those companies operated in uncertain environments with many contradictory signals, they have expressed a shared optimism with the European Commission regarding their financial positions because of the economic recovery (Kraemer-Eis et al 2018). A buyer systematically informs a financial institution (e.g., a bank) of payment obligations to selected suppliers, enabling the latter to borrow against the value of the relevant accounts receivable at low interest (borrowing) rates (Klapper 2006; Van Der Vliet et al 2015). FFiigguurree 22 ccllaassssiififieess ssoolluuttiioonnss bbyy tthheeiirr iimmppaacctt oonn tthhee wwoorrkkiinngg ccaappiittaall,, tthhee ddeeggrreeee ooff iinnnnoovvaattiioonn,, aanndd tthheeeexxtteennttooffddigigititaalliizzaattiioonn((OObbsseerrvvaattoorryy ffoorrSSuuppppllyyCChhaaiinnFFiinnaannccee22001166)).
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