We consider how trade credit can coordinate a two‐echelon supply chain in the presence of supplier moral hazard and costly working capital financing. While trade credit resolves moral hazard problems in the absence of working capital financing costs, we show that this is not necessarily true when financial frictions make financing trade credit costly. We then show that trade credit along with an appropriately designed reverse factoring program can restore supply chain efficiency.
BarrotJ.‐N.2016. Trade credit and industry dynamics: Evidence from trucking firms. J. Financ.71(5): 1975–2015.
4.
BergerA. N.UdellG. F.. 2002. Small business credit availability and relationship lending: The importance of bank organisational structure. Econ. J.112(477): F32–F53.
5.
BergerA. N.UdellG. F.. 2006. A more complete conceptual framework for SME finance. J. Bank. Financ.30(11): 2945–2966.
6.
BiE.2014. Ford motor to extend india dpo for suppliers. Corporate Treasurer, December 8, 2014.
7.
BrennanM. J.MaksimovicsV.ZechnerJ.. 1988. Vendor financing. J. Financ.43(5): 1127–1141.
8.
BurkartM.EllingsenT.. 2004. In‐kind finance: A theory of trade credit. Am. Econ. Rev.94(3): 569–590.
9.
CarpenterR. E.PetersenB. C.. 2002. Is the growth of small firms constrained by internal finance?Rev. Econ. Stat.84(2): 298–309.
10.
Clipper. 2015. Is supply chain financing for you?Corporate Treasurer, February 2, 2015.
11.
CunatV.2007. Trade credit: Suppliers as debt collectors and insurance providers. Rev. Financ. Stud.20(2): 491–527.
12.
CunatV.Garcia‐AppendiniE.. 2012. Trade credit and its role in entrepreneurial finance. CummingD., ed. Oxford Handbook of Entrepreneurial Finance. Oxford University Press, New York, 526–557.
13.
EstyB. C.MayfieldE. S.LaneD.. 2016. Supply chain finance at proctor and gamble. Harvard Business School Case 9‐216‐039, November 8, 2016.
14.
FazzariS. M.PetersenB. C.. 1993. Working capital and fixed investment: New evidence on financing constraints. Rand J. Econ.24(3): 328–342.
15.
FerrisJ. S.1981. A transactions theory of trade credit use. Q. J. Econ.96(2): 243–270.
16.
HurleyJ.2013. Growing fury as late payments climb past £36 bn. The Telegraph, January 5, 2013. Available at http://www.telegraph.co.uk/finance/businessclub/9783093/Growing-fury-aslatepayments-climb-past-36bn.html.
17.
IndapS.2017. Toys R Us collapse highlights fragility of supply chain finance. Financial Times, November 6, 2017. Available at https://www.ft.com/content/2a0bb496-c300-11e7-b2bb-322b2cb39656.
18.
IvashinaV.IversonB.SmithD. C.. 2016. The ownership and trading of debt claims in chapter 11 restructurings. J. Financ. Econ.119(2): 316–335.
RajanR. G.ZingalesL.. 1995. What do we know about capital structure? Some evidence from international data. J. Financ.50(5): 1421–1460.
26.
RuiH.LaiG.. 2015. Sourcing with deferred payment and inspection under supplier product adulteration risk. Prod. Oper. Manag.24(6): 934–946.
27.
StromS.2015. Big companies pay later, squeezing their suppliers. The New York Times, April 6, 2015. Available at http://www.nytimes.com/2015/04/07/business/big-companies-paylatersqueezing-their-suppliers.html.
28.
TanriseverF.CetinayH.ReindorpM.FransooJ. C.. 2015. Reverse factoring for SME finance. Available at SSRN https://ssrn.com/abstract=2183991.
29.
TuncaT. I.ZhuW.. 2017. Buyer intermediation in supplier finance. Management Sci.1–20. Articles in advance.
30.
van der VlietK.ReindorpM. J.FransooJ. C.. 2015. The price of reverse factoring: Financing rates vs. payment delays. Eur. J. Oper. Res.242: 842–853.