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This paper considers a firm that periodically orders inventory to satisfy demand in a finite horizon. The firm operates under two-level trade credit--that is, it offers trade credit to its customer while receiving one from its supplier. In addition to standard inventory-related costs, the firm also incurs periodic cash-related costs, which include a deficit penalty cost due to cash shortage and an interest gain (negative cost) due to excess cash after inventory payments. The objective is to obtain an inventory policy that maximizes the firm's working capital at the end of the horizon. We show that this problem is equivalent to one that minimizes the total inventory- and cash-related costs within the horizon. For this general model, we prove that a state-dependent policy is optimal. To facilitate implementation and reveal insights, we consider a simplified model in which a myopic policy is optimal under nondecreasing demand. A numerical study suggests that this myopic policy is an effective heuristic for the original system. The heuristic policy generalizes the classic base-stock policy and resembles practical working capital management under which a firm orders according to its working capital level. The policy parameters have closed-form expressions, which show the impact of demand and cost parameters on the inventory decision. Our study assesses the value of considering financial flows when a firm makes the inventory decision and reveals insights consistent with empirical findings. Supplemental Material: The online appendices are available at https://doi.org/10.1287/opre.2018.1787. Keywords: trade credit * inventory policy * working capital * default penalty, 1. Introduction Trade credit finance is an important inventory financing tool for firms. Particularly for small or newly established firms, which usually face expensive bank loans, trade credit is the [...]

A study was conducted to examine whether small firms can use trade credit if banks set a higher interest rate. Panel data of small firms in Japan are used. Findings indicate that the ratio of trade payables increases and a bank loses its amount of loans when the interest rate set by it is too severe or worsened for the borrower.

Under permissible delay in payments, all previously published models implicitly assumed that the supplier would offer the retailer a delay period, but the retailer would not offer the trade credit period to his/her customer. Huang [2003. Journal of the Operational Research Society 54, 1011-1015] developed a retailer's replenishment model to reflect the real-life situations by assuming that the retailer also adopts the trade credit policy to stimulate his/her customer demand. In Huang's model, it is assumed that the goods are not perishable and the storage capacity is unlimited. Based upon the above argument, we propose a two-warehouse inventory model for deteriorating items under permissible delay in payments. Three theorems are developed to determine the optimal cycle time and numerical examples are given to illustrate these theorems. Finally, the results in this paper generalize the results presented by Huang [2003. Journal of the Operational Research Society 54, 1011-1015]. Keywords: EOQ; Deteriorating items; Permissible delay in payments