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Journal article
The price of reverse factoring: Financing rates vs. payment delays
European journal of operational research, v 242(3), pp 842-853
01 May 2015
Featured in Collection : UN Sustainable Development Goals @ Drexel
Abstract
Reverse factoring a financial arrangement where a corporation facilitates early payment of its trade credit obligations to suppliers is increasingly popular in industry. Many firms use the scheme to induce their suppliers to grant them more lenient payment terms. By means of a periodic review base stock model that includes alternative sources of financing, we explore the following question: what extensions of payment terms allow the supplier to benefit from reverse factoring? We obtain solutions by means of simulation optimisation. We find that an extension of payment terms induces a non-linear financing cost for the supplier, beyond the opportunity cost of carrying additional receivables. Furthermore, we find that the size of the payment term extension that a supplier can accommodate depends on demand uncertainty and the cost structure of the supplier. Overall, our results show that the financial implications of an extension of payment terms need careful assessment in stochastic settings. (C) 2014 Elsevier B.V. All rights reserved.
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Details
- Title
- The price of reverse factoring: Financing rates vs. payment delays
- Creators
- Kasper van der Vliet - Eindhoven University of TechnologyMatthew J. Reindorp - Eindhoven University of TechnologyJan C. Fransoo - Eindhoven University of Technology
- Publication Details
- European journal of operational research, v 242(3), pp 842-853
- Publisher
- Elsevier
- Number of pages
- 12
- Grant note
- DINALOG, the Dutch Institute for Advanced Logistics
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- Decision Sciences (and Management Information Systems)
- Web of Science ID
- WOS:000348953300013
- Scopus ID
- 2-s2.0-84920516847
- Other Identifier
- 991021810214404721
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Data related to this publication, from InCites Benchmarking & Analytics tool:
- Web of Science research areas
- Management
- Operations Research & Management Science