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Purchase Order Finance: A Conceptual Model with Economic Insights
Author(s): Fehmi Tanrisever;Matthijs van Bergen;Matthew Reindorp
Source: Journal:Foundations and Trends® in Technology, Information and Operations Management ISSN Print:1571-9545, ISSN Online:1571-9533 Publisher:Now Publishers Volume 10 Number 3-4, Pages: 21 (305-323) DOI: 10.1561/0200000065 Keywords: Supplier financing;Supply chain finance;Cost of capital
Abstract:
Purchase Order (PO) finance is a form of financial intermediation
which can alleviate capital constraints in certain supply chains.
PO finance is typically utilized by small and medium-sized enterprises
(SMEs) that operate as importers, exporters, wholesalers,
or distributors and have high sales growth. When applicable, PO
finance creates value for the supply chain by providing capital
that is not available through regular lending channels, due to
informational problems. We provide a conceptual model that clarifies
the value proposition of PO finance and describe how the
transactions are carried out in practice. The conceptual model
allows us to highlight the settings where economic conditions will
favor the application of PO finance.
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