Optimizing retailer’s order and financing decisions on an e-commercial platform considering cash flow

Abstract

The mismatch in cash flow often distorts business operational decisions and even lead to bankruptcy for enterprises. This paper investigates the order and financing decisions of a capital constrained retailer who borrows from an e-commerce platform to fund its business operations. The ecommercial platform, which has full capital, provides three financing schemes: (1) lump-sum repayment (scheme L), (2) average capital plus interest repayment (scheme P), and (3) average capital repayment (scheme A). We first model the financing behaviors of the retailer and determine the circumstances in which the retailer favors a specific financing scheme. Then, we propose a viable cash flow matching strategy in which the retailer retains a portion of its initial capital to address potential repayment shortfalls in each period. To the best of our knowledge, this paper is the first to integrate the capital constrained retailer’s cash flow management into the platform financing scheme. The results show that: In the absence of cash flow considerations, the retailer prefers scheme L since selecting scheme P or A may lead to bankruptcy. In contrast, if the cash flow matching is efficiently realized, the retailer always prefers scheme P to enhance its performance. Numerical examples are used to validate the theoretical results.