Modeling Quantity Discounts Under Factoring Financing

The paper begins with the universal phenomenon of funding constraint in smalland medium enterprises. Further research finds that a lot of property in SME areaccounts receivable. Factoring financing is widely used in both national and foreignenterprises as well as very attractive to a lot of scholars. While the operation decisionis affected by funding factors in the SME, few research considers the quantity relationof trade financing contract. Therefore this paper first try to consider factoringfinancing into the quantity discount contract from the standpoint of SME anddiscusses the coordination mechanism of all-units quantity discount in the two-levelsupply chain when the demand is sensitive to price. The paper expects improve thetheoretic research of supply-chain contract and quantity research of factoringfinancing, and offer theoretic support to SME when they make operation decisions.The paper first constructs the model of quantity discount regardless of financing,then the credit line of trade finance and pricing model, and the integrated model offactoring financing with the quantity discount when the demand is sensitive to price.The model assumes that suppliers are willing to make factoring financing and offerquantity discount only when they can gain more profit, while manufacturers arewilling to accept the strategy and banks are willing to offer factoring financing onlyunder the same condition. The EOQ model is applied in the supply chain, and usingBackwards Induction to analyze the game between the upstream and downstream. Inthe end the paper studies a case and uses the integrated model to find the optimalsolution and also tests the validity of the model.The research finds that the solution for the model exists, which means thatsupplier, manufacturers and banks can all gain more profit. The cost of factoringfinancing is much lower than the profit of receiving investment ahead of time.Suppliers should increase the demand, guarantee the Pareto optimal trade, increase thetrading amount and revitalize the account receivable by the strategy of combiningfactoring financing and quantity discount.