Foundations and Trends® in Technology, Information and Operations Management > Vol 14 > Issue 1–2

Trade Credit in Supply Chains: Multiple Creditors and Priority Rules

S. Alex Yang, London Business School, UK, sayang@london.edu , John R. Birge, Booth School of Business, The University of Chicago, USA, john.birge@chicagobooth.edu
 
Suggested Citation
S. Alex Yang and John R. Birge (2020), "Trade Credit in Supply Chains: Multiple Creditors and Priority Rules", Foundations and Trends® in Technology, Information and Operations Management: Vol. 14: No. 1–2, pp 5-22. http://dx.doi.org/10.1561/0200000096-1

Publication Date: 01 Oct 2020
© 2020 S. Alex Yang and John R. Birge
 
Subjects
Supply chain management,  Contracting in Supply Chains,  Corporate Finance
 

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In this article:
1. Introduction
2. Priority Rules Related to Trade Credit
3. Priority Rules and Demand Risk Sharing
4. Trade Credit and Priority in thePresence of Multiple Risks
5. Conclusion and Future Research
References

Abstract

Priority rules determine the order of repayment to different creditors when the debtor cannot repay all of his debt. In this chapter, we study how different priority rules influence trade credit usage and supply chain efficiency under the risk-sharing role of trade credit. We find that with only demand risk, when the wholesale price is exogenous, trade credit with high priority can lead to high chain efficiency, yet trade credit with low priority allows more retailers to obtain trade credit and suppliers to gain higher profits. When the supplier has control of wholesale price, however, the supplier should extend unlimited trade credit, deeming priority rules irrelevant. When other non-demand risks, especially those with longer terms in nature, are present, we show several scenarios when the optimal trade credit policy should change according to different risks, and that in general, trade credit with low priority results in higher chain efficiency.

DOI:10.1561/0200000096-1
ISBN: 978-1-68083-722-3
248 pp. $99.00
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ISBN: 978-1-68083-723-0
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Table of contents:
Advances in Supply Chain Finance and FinTech Innovations Book Overview
Part 1: Financing Issues in Supply Chains
Trade Credit in Supply Chains: Multiple Creditors and Priority Rules
Guarantor Financing Selection Under Influence of Supply Chain Leadership and Economies of Scale
Inventory and Financial Strategies with Capital Constraints and Limited Joint Liability
Part 2: FinTech Innovations for Supply Chains
Financing Inventory Through Initial Coin Offerings (ICOs)
Renewable Identification Numbers: A Supply-Chain Risk View
Part 3: Advances in Risk Management of Operational Systems
Managing Disruption Risk Over the Product Life Cycle
Production Planning with Inventory-Based Financing
Achieving Efficiency in Capacity Procurement
The Term Structure of Optimal Operations
Least Squares Monte Carlo and Approximate Linear Programming with an Energy Real Option Application

Emerging Advances in Supply Chain Finance and FinTech Innovations

Advances in Supply Chain Finance and FinTech Innovations examines three themes:

Financing Issues in Supply Chains look into popular working capital management financing practices: trade credits and guarantor practices including advanced trade credit practices in supply chains, guarantor financing practices for capital constrained retailers, and innovative practices of joint financing of capital constrained firms by a bank.

FinTech Innovations for Supply Chains examines business model innovations for supply chain financing supported through new platform technologies (such as blockchain), and simple financial technologies effectively implemented for high impact in supply chain risk management.

Advances in Risk Management of Operational Systems provide state-of-the art thinking on many risk issues in supply chain operations including disruption strategies over the product life cycle, the production planning complexities for a capital constrained manufacturer that uses Inventory Based Financing (IBF) scheme to fund its working capital needs, capacity procurement decision, capacity planning in the presence of demand and price uncertainty, and valuing complex real options in dynamic operational settings.

 
TOM-096-1

Companion

Foundations and Trends® in Technology, Information and Operations Management, Volume 14, Issue 1-2 Special Issue: Advances in Supply Chain Finance and FinTech Innovations
See the other articles that are also part of this special issue.