TY - CONF

T1 - Enhance financing for small- and medium-sized suppliers with reverse factoring: a game theoretical analysis

AU - Zhu, Lijing

AU - Ou, Yi

PY - 2023/12

Y1 - 2023/12

N2 - Reverse factoring, a financial scheme in which established retailers facilitate financing for suppliers, is becoming an increasingly important tool in the industry. Normally, an SME supplier, a core retailer and a bank participate in the reverse factoring scheme. A three-level Stackelberg game is proposed in this study to investigate the interaction of the participants. The closed-form equilibria of the retailer’s replenishment decision, the supplier’s payment term decision and the bank’s financing decision are derived from the theoretical model. To our knowledge, this study is the first attempt which takes banks into account and endogenises their interest rates in the modelling of reverse factoring. The reverse factoring scheme is compared with commercial loans and traditional factoring. Compared to commercial loans, the introduction of factoring can lower credit risk, but fraud risk still exists. Reverse factoring solves this fraud problem and further decreases the financing cost for the supplier. Consequently, reverse factoring benefits the retailer through a significantly increased payment extension granted by the supplier. The numerical results also indicate that the utility of the bank significantly improves by 8–50% under varying levels of default risk compared with traditional factoring. Our study provides incentives and guidelines for supply chain participants to adopt such schemes when faced with capital constraints and the credit risk of the supplier.

AB - Reverse factoring, a financial scheme in which established retailers facilitate financing for suppliers, is becoming an increasingly important tool in the industry. Normally, an SME supplier, a core retailer and a bank participate in the reverse factoring scheme. A three-level Stackelberg game is proposed in this study to investigate the interaction of the participants. The closed-form equilibria of the retailer’s replenishment decision, the supplier’s payment term decision and the bank’s financing decision are derived from the theoretical model. To our knowledge, this study is the first attempt which takes banks into account and endogenises their interest rates in the modelling of reverse factoring. The reverse factoring scheme is compared with commercial loans and traditional factoring. Compared to commercial loans, the introduction of factoring can lower credit risk, but fraud risk still exists. Reverse factoring solves this fraud problem and further decreases the financing cost for the supplier. Consequently, reverse factoring benefits the retailer through a significantly increased payment extension granted by the supplier. The numerical results also indicate that the utility of the bank significantly improves by 8–50% under varying levels of default risk compared with traditional factoring. Our study provides incentives and guidelines for supply chain participants to adopt such schemes when faced with capital constraints and the credit risk of the supplier.

U2 - 10.1007/s10479-021-04361-0

DO - 10.1007/s10479-021-04361-0

M3 - Paper

SP - 159

EP - 187

ER -