Comparison Of Joint Liability And Trade Credit Under Vertical Supply Chain Financing

Supply chain finance has become an important area of the supply chain managementand research. At the same time, capital constraint in the supply chain is an importantfactor affecting the supply chain performance. Currently, Small and medium-sizedenterprises are capital constraints. Small and medium-sized enterprises are an importantpart of the characteristics of socio-economic system in China, and are also the mostdynamic groups in the socialist market economy. Due to our financial system, financialinstitutions on the financing of small and medium enterprises with a high threshold, andgradually formed the financing difficulties of small and medium-sized enterprises. Tradecredit is a widely used short-term financing way. Joint liability and trade credit havemany similarities to some extent.This paper using capital constrained newsboy model, investigates the difference oftwo financing methods that impact on supply chain performance. There is a supplier anda retailer in the supply chain. In this paper, the supplier’s rate-setting was divided intotwo rate-setting modes. One is that the suppliers under the risk-neutral interest ratepricing. Another is to set interest rates according to the supplier’s own revenuemaximization. By comparison of the two financing modes, we can see that the retailer’soptimal order quantity with its own funds and bank interest rates as decreasingrelationship. This study shows that under risk-neutral model the trade credit outperformsthe joint liability in terms of supply chain revenue. In another pricing model, there is astrong relationship between supply chain performance and retailer’s self-capital. Also,this paper provides a specific guidance in the practical supply chain management andoperations.