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The Impact of Working Capital Financing Costs on the Efficiency of Trade Credit

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  • Sripad K. Devalkar
  • Harish Krishnan

Abstract

We consider how trade credit can coordinate a two‐echelon supply chain in the presence of supplier moral hazard and costly working capital financing. While trade credit resolves moral hazard problems in the absence of working capital financing costs, we show that this is not necessarily true when financial frictions make financing trade credit costly. We then show that trade credit along with an appropriately designed reverse factoring program can restore supply chain efficiency.

Suggested Citation

  • Sripad K. Devalkar & Harish Krishnan, 2019. "The Impact of Working Capital Financing Costs on the Efficiency of Trade Credit," Production and Operations Management, Production and Operations Management Society, vol. 28(4), pages 878-889, April.
    • Handle: RePEc:bla:popmgt:v:28:y:2019:i:4:p:878-889
    DOI: 10.1111/poms.12954
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    References listed on IDEAS

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