Value of Reverse Factoring in Multi-stage Supply Chains

31 Pages Posted: 2 Dec 2012 Last revised: 16 Feb 2020

See all articles by Fehmi Tanrisever

Fehmi Tanrisever

Bilkent University, Faculty of Business Administration

Hande Cetinay

Eindhoven University of Technology (TUE) - Department of Industrial Engineering and Innovation Sciences

Matthew Reindorp

Drexel University - Department of Decision Sciences

Jan C. Fransoo

Tilburg University - Tilburg University School of Economics and Management; Eindhoven University of Technology, Department of Industrial Engineering and Innovation Sciences

Date Written: April 10, 2015

Abstract

We present a mathematical model for integration, analysis, and optimization of operational and financial processes within a supply chain. Specifically, we consider commercial transactions of a large corporate customer with a small or medium-sized supplier. We show how application of reverse factoring influences the operational and financial decisions of these firms. While some empirical work on reverse factoring exists within research literature, our model constitutes the first analytic treatment of the problem, using the value framework of financial theory. We show how the value of reverse factoring results from, and is conditioned by (1) the spread in external financing costs, (2) the operating characteristics of the supplier, including the implied working capital policy, and (3) the risk-free interest rate. Thus, in addition to providing managerial insights that integrate operational and financial perspectives, our findings disclose an important relation of these elements to the broader macro-economic context.

Keywords: Supply Chain Finance, Joint Production and Financial Decisions, Reverse Factoring, Informational Asymmetries

JEL Classification: G10, G30

Suggested Citation

Tanrisever, Fehmi and Cetinay, Hande and Reindorp, Matthew and Fransoo, Jan C., Value of Reverse Factoring in Multi-stage Supply Chains (April 10, 2015). Available at SSRN: https://ssrn.com/abstract=2183991 or http://dx.doi.org/10.2139/ssrn.2183991

Fehmi Tanrisever (Contact Author)

Bilkent University, Faculty of Business Administration ( email )

Bilkent
Ankara, 06800
Turkey

Hande Cetinay

Eindhoven University of Technology (TUE) - Department of Industrial Engineering and Innovation Sciences ( email )

Den Dolech 2
Eindhoven
Netherlands

Matthew Reindorp

Drexel University - Department of Decision Sciences ( email )

United States

Jan C. Fransoo

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

HOME PAGE: http://https://www.tilburguniversity.edu/staff/jan-fransoo

Eindhoven University of Technology, Department of Industrial Engineering and Innovation Sciences ( email )

P.O. Box 513
Eindhoven, 5600 MB
Netherlands

HOME PAGE: http://www.tue.nl/staff/j.c.fransoo

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