Supporting small suppliers through buyer-backed purchase order financing

Boray Huang, Andy Wu, David Chiang

Onderzoeksoutput: Bijdrage aan tijdschriftTijdschriftartikelAcademicpeer review

13 Citaten (Scopus)

Samenvatting

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.

Originele taal-2Engels
Pagina's (van-tot)6066-6089
Aantal pagina's24
TijdschriftInternational Journal of Production Research
Volume56
Nummer van het tijdschrift18
DOI's
StatusGepubliceerd - 17 sep 2018

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