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Understanding SME suppliers' response to supply chain finance: a transaction cost economics perspective

Christiaan de Goeij (Business, Media and Law, Windesheim University of Applied Sciences, Zwolle, The Netherlands) (Department of Management, Economics and Industrial Engineering, Politecnico di Milano, Milan, Italy)
Luca Mattia Gelsomino (Business, Media and Law, Windesheim University of Applied Sciences, Zwolle, The Netherlands)
Federico Caniato (Department of Management, Economics and Industrial Engineering, Politecnico di Milano, Milan, Italy)
Antonella Maria Moretto (Department of Management, Economics and Industrial Engineering, Politecnico di Milano, Milan, Italy)
Michiel Steeman (Business, Media and Law, Windesheim University of Applied Sciences, Zwolle, The Netherlands)

International Journal of Physical Distribution & Logistics Management

ISSN: 0960-0035

Article publication date: 2 June 2021

Issue publication date: 12 August 2021

1271

Abstract

Purpose

Reverse factoring (RF) is one of the most prevalent supply chain finance (SCF) solutions. This study challenges the view that suppliers accept financially attractive reverse factoring offers (RFOs) and reject financially unattractive ones. Specifically, it focuses on small and medium enterprise (SME) suppliers and how transaction cost economics (TCE) factors affect their decision.

Design/methodology/approach

The authors study eight cases of RFOs, interviewing suppliers, buyers and financial service providers (FSPs) and using several sources of private and publicly available secondary data.

Findings

In five out of eight RFOs, suppliers either accepted unattractive offers or rejected attractive ones. Bounded rationality and opportunism seem to explain such misalignment, while asset specificity and frequency play a minor role in decisions.

Research limitations/implications

The study shows the need for further investigation linking analytical assessment of SCF benefits with qualitative factors.

Practical implications

SME suppliers cannot assume an RFO will benefit them. They must critically evaluate their buyers' offers, ideally with self-awareness towards how the abovementioned factors might affect their decisions. For buyers and banks, this study gives clear insights on how to approach SME suppliers to avoid rejection of financially attractive RFOs.

Originality/value

This contribution analyses financial attractiveness of RFOs in conjunction with qualitative factors, including rejected RFOs and without assuming that RFOs are financially attractive for suppliers. This is original and relevant for both research and practice, since it extends the understanding of the supplier response to RFOs, thanks to the consideration of TCE factors.

Keywords

Acknowledgements

This research was conducted in the context of the NWO project ‘Supply Chain Finance for SMEs’.

Citation

de Goeij, C., Gelsomino, L.M., Caniato, F., Moretto, A.M. and Steeman, M. (2021), "Understanding SME suppliers' response to supply chain finance: a transaction cost economics perspective", International Journal of Physical Distribution & Logistics Management, Vol. 51 No. 8, pp. 813-836. https://doi.org/10.1108/IJPDLM-04-2020-0125

Publisher

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Emerald Publishing Limited

Copyright © 2020, Emerald Publishing Limited

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