The Research On Trade Credit Financing In A Cash-Constrained Supply Chain

A lack of capital always constrains the producing and purchasing decisions made by a supplychain node enterprise, even makes a great influence on development of the upstream anddownstream industries in a supply chain, and then the overall profit of the supply chain will beharmed. Trade credit financing is an effective solution to the financing problem of a supply chainnode enterprise. Trade credit financing, which combine commercial credit and purchasing behavior,helps promote the establishment of long-term strategic collaboration between supply chain nodeenterprises, and improve the competitiveness of enterprises in the supply chain, maintain the normaloperation and development and improve the overall performance of the supply chain.This paper shows the capital constraint of SME’s in the supply chain firstly, and explores thesolutions to it. And the status of supply chain node enterprises is analyzed from the perspective offinancing ways. Then trade credit financing is proposed as an effective measure to ease thefinancing difficulties of supply chain node enterprises. Meanwhile, based on the specific supplychain, we will analyze the trade credit financing structure and operation of supply chain nodeenterprises, and study more about trade credit financing.In this paper we consider a supply chain consists of a single supplier and a single retailerwhich has the optimal order quantity. We study a retailer which is capital constrained how tofinance in order to optimize his efficiency. The supplier can offer the retailer financing with a tradecredit contract: full payment, full credit, partly payment. We compare the optimal financing choicesto supplier and retailer respectively by building trade credit financing model. The conclusion showsthat the supply chain efficiency always keeps the same with three different financing modes.Finally, from perspective of the supplier, the retailer and the supply chain, numerical analysison trade credit financing model will be given. The results validate the conclusions of the model, andthen some suggestions about the model application will be put forward. This study has offeredtheoretical and practical guidance in solving SME’s financing difficulty and development of tradecredit financing.