Why and How Does a Supplier Choose Factoring Finance?

Table 1

Notation.

	Retailer’s retail price of the product (we normalize )
c	Supplier’s unit production cost;
	Supplier’s decision variable, the wholesale price; , for
	Retailer’s decision variable, the order quantity, for
	Total amount of the accounts receivable, for
	Cost of the supplier’s working capital
	The retailer’s/supplier’s expected profit, for
m/M	The probability that the retailer does not default when her sale revenue is insufficient to repay her obligations under the supplier’s/the factor’s supervision
λ	Factor’s financing ratio to the supplier;
α	Supplier’s target profit level when he is risk-averse
β	The specified threshold in which the supplier keeps the probability that his actual profit falls below target profit not exceeds.