Bank Credit Versus Trade Credit: The Preferences of Financial Formats for Supply Chain Members

Bank credit and trade credit are two types of financial formats in a supply chain. We consider a two-echelon supply chain with one supplier and one capital constrained retailer. By formulating the retailer’s and the supplier’s objective functions respectively, we find that the preference of credit formats for the retailer and the supplier are different and it depends on the credit interest rate. We also do some sensitivity study on the preference of financial formats to demonstrate our conclusions.